Robust Control in Global Warming Management: An Analytical Dynamic Integrated Assessment
AbstractKnightian uncertainty in climate sensitivity is analyzed in a two sectoral integrated assessment model (IAM), based on an extension of DICE. A representative household that expresses ambiguity aversion uses robust control to identify robust climate policy feedback rules that work well over IPCC climate-sensitivity uncertainty range . Ambiguity aversion, together with linear damage, increases carbon cost in a similar way as a low pure rate of time preference. Secondly, in combination with non-linear damage it makes policy responsive to changes in climate data observations as it makes the household concerned about misreading sudden increases in carbon concentration rate and temperature as sources to global warming. Perfect ambiguity aversion results in an infinite expected shadow carbon cost and a zero carbon-intensive consumption path. Dynamic programming identifies an analytically tractable solution to the model.
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Bibliographic InfoPaper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 354.
Length: 31 pages
Date of creation: 17 Apr 2009
Date of revision:
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Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
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robust control; climate change policy; carbon cost; Knightian uncertainty; ambiguity aversion; integrated assessment models;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-04-25 (All new papers)
- NEP-ENE-2009-04-25 (Energy Economics)
- NEP-ENV-2009-04-25 (Environmental Economics)
- NEP-RES-2009-04-25 (Resource Economics)
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