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Does The Adverse Announcement Effect Of Climate Policy Matter? — A Dynamic General Equilibrium Analysis

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  • MARIE-CATHERINE RIEKHOF

    (CER-ETH — Center of Economic, Research at ETH Zurich, Zürichbergstrasse 18, 8092 Zurich, Switzerland)

  • JOHANNES BRÖCKER

    (Department of Economics, Christian-Albrechts University, Kiel, Olshausenstrasse 40 24118 Kiel, Germany)

Abstract

We consider a carbon emissions tax announced today, but implemented after a known time-lag. Before implementation, the announcement induces higher emissions than without intervention. In welfare terms, this adverse announcement effect could more than outweigh the gain after tax implementation. We quantify a “critical lag” such that a shorter (longer) implementation lag is a welfare gain (loss) over no-intervention. We identify resource scarcity as the main driver for a short critical lag. The model is a global Ramsey Model extended by an exhaustible carbon resource and linked to a climate model.

Suggested Citation

  • Marie-Catherine Riekhof & Johannes Bröcker, 2017. "Does The Adverse Announcement Effect Of Climate Policy Matter? — A Dynamic General Equilibrium Analysis," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 8(02), pages 1-34, May.
    • Handle: RePEc:wsi:ccexxx:v:08:y:2017:i:02:n:s2010007817500075
    DOI: 10.1142/S2010007817500075
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