Robust Control in Global Warming Management: An Analytical Dynamic Integrated Assessment
AbstractImperfect measurement of uncertainty (deeper uncertainty) in climate sensitivity is introduced in a two-sectoral integrated assessment model (IAM) with endogenous growth, based on an extension of DICE. The household expresses ambiguity aversion and can use robust control via a `shadow ambiguity premium' on social carbon cost to identify robust climate policy feedback rules that work well over a range such as the IPCC climate sensitivity range (IPCC, 2007a). Ambiguity aversion, in combination with linear damage, increases carbon cost in a similar way as a low pure rate of time preference. However, ambiguity aversion in combination with non-linear damage would also make policy more responsive to changes in climate data observations. Perfect ambiguity aversion results in an infinite expected shadow carbon cost and a zero carbon consumption path. Dynamic programming identifies an analytically tractable solution to the IAM.
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Bibliographic InfoPaper provided by Resources For the Future in its series Discussion Papers with number dp-09-19.
Date of creation: 04 May 2009
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climate policy; carbon cost; robust control; Knightian uncertainty; ambiguity aversion; integrated asssessment;
Find related papers by JEL classification:
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- 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-2009-12-19 (All new papers)
- NEP-ENE-2009-12-19 (Energy Economics)
- NEP-ENV-2009-12-19 (Environmental Economics)
- NEP-GTH-2009-12-19 (Game Theory)
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