Uncertainty, Learning, and Optimal Technological Portfolios: A Dynamic General Equilibrium Approach to Climate Change
AbstractHow is the design of efficient climate policies affected by the potentials for induced technological change and for future learning about key parameter uncertainties? We address this question using a new integrated climate-economy model incorporating endogenous technological change to explore optimal technological portfolios against global warming in the presence of uncertainty and learning. We explicitly consider the interplays between induced innovation, the stringency of environmental policies, and possible environmental risks within the general equilibrium framework of probabilistic integrated assessment. We find that the value of resolving key scientific uncertainties would be non-trivial in the face of binding climate limits, but at the same time it can significantly decrease with induced innovation and knowledge spillovers that might otherwise be absent. The results also show that scientific uncertainties in climate change could justify immediate mitigation actions and accelerated investments in new energy technologies, reflecting risk-reducing considerations.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2005 with number 54.
Date of creation: 11 Nov 2005
Date of revision:
Uncertainty; Learning; Optimal technological portfolios; Endogenous technological change; Stochastic growth model; Probabilistic integrated assessment; Carbon-free technology; Expected value of information;
Find related papers by JEL classification:
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- 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-2005-11-19 (All new papers)
- NEP-DGE-2005-11-19 (Dynamic General Equilibrium)
- NEP-ENE-2005-11-19 (Energy Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Paul M Romer, 1999.
"Increasing Returns and Long-Run Growth,"
Levine's Working Paper Archive
2232, David K. Levine.
- David F. Bradford & Seung-Rae Kim & Klaus Keller, 2004. "Optimal Technological Portfolios for Climate-Change Policy under Uncertainty: A Computable General Equilibrium Approach," Computing in Economics and Finance 2004 140, Society for Computational Economics.
- Obstfeld, Maurice, 1994.
"Risk-Taking, Global Diversification, and Growth,"
American Economic Review,
American Economic Association, vol. 84(5), pages 1310-29, December.
- Obstfeld, Maurice, 1992. "Risk-Taking, Global Diversification, and Growth," CEPR Discussion Papers 688, C.E.P.R. Discussion Papers.
- Maurice Obstfeld, 1995. "Risk-Taking, Global Diversification, and Growth," NBER Working Papers 4093, National Bureau of Economic Research, Inc.
- Maurice Obstfeld., 1993. "Risk-Taking, Global Diversification, and Growth," Center for International and Development Economics Research (CIDER) Working Papers C93-016, University of California at Berkeley.
- Maurice Obstfeld, 1992. "Risk-taking, global diversification, and growth," Discussion Paper / Institute for Empirical Macroeconomics 61, Federal Reserve Bank of Minneapolis.
- Gollier, Christian & Jullien, Bruno & Treich, Nicolas, 2000. "Scientific progress and irreversibility: an economic interpretation of the 'Precautionary Principle'," Journal of Public Economics, Elsevier, vol. 75(2), pages 229-253, February.
- Barro, Robert J, 1990.
"Government Spending in a Simple Model of Endogenous Growth,"
Journal of Political Economy,
University of Chicago Press, vol. 98(5), pages S103-26, October.
- Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
- Robert J. Barro, 1991. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
- Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers 130, University of Rochester - Center for Economic Research (RCER).
- 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.
- John Y. Campbell, 1995.
"Understanding Risk and Return,"
Harvard Institute of Economic Research Working Papers
1711, Harvard - Institute of Economic Research.
- 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.
- Popp, David, 2004. "ENTICE: endogenous technological change in the DICE model of global warming," Journal of Environmental Economics and Management, Elsevier, vol. 48(1), pages 742-768, July.
- Pizer, William A., 1999. "The optimal choice of climate change policy in the presence of uncertainty," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 255-287, August.
- McDonald, Alan & Schrattenholzer, Leo, 2001. "Learning rates for energy technologies," Energy Policy, Elsevier, vol. 29(4), pages 255-261, March.
- Corsetti, Giancarlo, 1997. "A portfolio approach to endogenous growth: equilibrium and optimal policy," Journal of Economic Dynamics and Control, Elsevier, vol. 21(10), pages 1627-1644, August.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).
If references are entirely missing, you can add them using this form.