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Fat-tailed uncertainty and the learning-effect

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  • Hwang, In Chang

Abstract

One of the recent findings in the economics of climate change is that emissions control plays a significant role in the reduction of the tail-effect of fat-tailed uncertainty on welfare. The current paper gives another perspective: the learning-effect. The effect of emissions control on welfare is decomposed into the direct effect and the learning-effect. Although this has been known for thin-tailed uncertainty in the literature, this paper takes a different approach: the changes in temperature distributions under fat-tailed uncertainty and learning.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 53671.

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Date of creation: 14 Feb 2014
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Handle: RePEc:pra:mprapa:53671

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Keywords: Climate policy; deep uncertainty; Dismal Theorem; tail-effect; learning-effect;

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References

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  1. Weitzman, Martin L., 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," Scholarly Articles 3693423, Harvard University Department of Economics.
  2. Robert S. Pindyck, 2010. "Fat Tails, Thin Tails, and Climate Change Policy," NBER Working Papers 16353, National Bureau of Economic Research, Inc.
  3. Kolstad, Charles D., 1996. "Fundamental irreversibilities in stock externalities," Journal of Public Economics, Elsevier, vol. 60(2), pages 221-233, May.
  4. Millner, Antony, 2013. "On welfare frameworks and catastrophic climate risks," Journal of Environmental Economics and Management, Elsevier, vol. 65(2), pages 310-325.
  5. Kolstad, Charles D., 1996. "Learning and Stock Effects in Environmental Regulation: The Case of Greenhouse Gas Emissions," Journal of Environmental Economics and Management, Elsevier, vol. 31(1), pages 1-18, July.
  6. Leach, Andrew J., 2007. "The climate change learning curve," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1728-1752, May.
  7. Kelly, David L. & Kolstad, Charles D., 1999. "Bayesian learning, growth, and pollution," Journal of Economic Dynamics and Control, Elsevier, vol. 23(4), pages 491-518, February.
  8. Ingham, Alan & Ma, Jie & Ulph, Alistair, 2007. "Climate change, mitigation and adaptation with uncertainty and learning," Energy Policy, Elsevier, vol. 35(11), pages 5354-5369, November.
  9. Robert S. Pindyck, 2009. "Uncertain Outcomes and Climate Change Policy," NBER Working Papers 15259, National Bureau of Economic Research, Inc.
  10. Mort Webster, 2002. "The Curious Role of "Learning" in Climate Policy: Should We Wait for More Data?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 97-119.
  11. Cyert, Richard M & DeGroot, Morris H, 1974. "Rational Expectations and Bayesian Analysis," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 521-36, May/June.
  12. Hwang, In Chang & Reynes, Frederic & Tol, Richard, 2014. "The effect of learning on climate policy under fat-tailed uncertainty," MPRA Paper 53681, University Library of Munich, Germany.
  13. Martin L. Weitzman, 2012. "A Precautionary Tale of Uncertain Tail Fattening," NBER Working Papers 18144, National Bureau of Economic Research, Inc.
  14. In Chang Hwang & Richard S.J. Tol & Marjan W. Hofkes, 2013. "Active Learning about Climate Change," Working Paper Series 6513, Department of Economics, University of Sussex.
  15. Weitzman, Martin L., 2012. "GHG Targets as Insurance Against Catastrophic Climate Damages," Scholarly Articles 11315435, Harvard University Department of Economics.
  16. Martin L. Weitzman, 2010. "GHG Targets as Insurance Against Catastrophic Climate Damages," NBER Working Papers 16136, National Bureau of Economic Research, Inc.
  17. Ulph, Alistair & Ulph, David, 1997. "Global Warming, Irreversibility and Learning," Economic Journal, Royal Economic Society, vol. 107(442), pages 636-50, May.
  18. In Hwang & Frédéric Reynès & Richard Tol, 2013. "Climate Policy Under Fat-Tailed Risk: An Application of Dice," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 56(3), pages 415-436, November.
  19. Antony Millner, 2013. "On Welfare Frameworks and Catastrophic Climate Risks," CESifo Working Paper Series 4442, CESifo Group Munich.
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