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Climate Policy Decisions Under Ambiguity and Pressure of Time


  • Yu-Fu Chen

    (School of Business, University of Dundee)

  • Michael Funke

    (Department of Economics, Hamburg University and CESifo)

  • Nicole Glanemann

    (International Max Planck Research School on Earth System Modelling (IMPRS-ESM) and Department of Economics, Hamburg University)


This article summarises our studies on the optimal timing of climate policy adoption by focusing on ambiguity in the climate damage cost assessments (Chen et al., 2011) and on the limited time to achieve certain climate policy targets (Chen et al., 2012). Using real options theory, both studies conclude that climate policy adoption should be accelerated. However, the implementation of climate policy is evaded by high uncertainty about critical parameters and possible climate pathways.

Suggested Citation

  • Yu-Fu Chen & Michael Funke & Nicole Glanemann, 2013. "Climate Policy Decisions Under Ambiguity and Pressure of Time," Review of Environment, Energy and Economics - Re3, Fondazione Eni Enrico Mattei, February.
  • Handle: RePEc:fem:femre3:2013.02-01

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    Climate policy; CO2 scenarios; Knightian uncertainty; k-ambiguity; real options; non-perpetual real options;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming


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