Climate Policy as Expectation Management?
AbstractIt is believed that the primary economic solution to climate change is an introduction of a carbon pricing system anchored to the social cost of carbon, either as a form of tax or tradable permits. Potentially significant externalities accompanying the introduction of emission-reducing technologies, however, imply that the standard argument does not capture some important aspects for the designing of climate policy such as expectation-driven technology adoption. By using a simple model, we show some possible cases where carbon emission reduction progresses in a self-fulfilling prophecy by firms expecting others’ future actions. In such circumstances, the carbon pricing system does not have much influence on determining the final outcome of economy-wide emission reduction. This highlights the danger of overemphasis on finding the “right” carbon price in policy making and the role of climate policy as expectation management
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1624.
Length: 17 pages
Date of creation: May 2010
Date of revision:
climate policy; technology choice; expectations; multiple equilibria;
Find related papers by JEL classification:
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-06-04 (All new papers)
- NEP-ENE-2010-06-04 (Energy Economics)
- NEP-ENV-2010-06-04 (Environmental Economics)
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- Daiju Narita & Ulrich J. Wagner, 2011. "Expectation-Driven Climate Treaties with Breakthrough Technologies," Kiel Working Papers 1732, Kiel Institute for the World Economy.
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