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The effect of uncertainty on decision making about climate change mitigation. A numerical approach of stochastic control

  • Thomas S. Lontzek
  • Daiju Narita

We apply standardized numerical techniques of stochastic optimization (Judd [1998]) to the climate change issue. The model captures the feature that the effects of uncertainty are different with different levels of agent's risk aversion. A major finding is that the effects of stochasticity differ even in sign as to emission control with varying parameters: introduction of stochasticity may increase or decrease emission control depending on parameter settings, in other words, uncertainties of climatic trends may induce people's precautionary emission reduction but also may drive away money from abatement

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1539.

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Length: 19 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:kie:kieliw:1539
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  1. Henry, Claude, 1974. "Investment Decisions Under Uncertainty: The "Irreversibility Effect."," American Economic Review, American Economic Association, vol. 64(6), pages 1006-12, December.
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