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Fat-tailed uncertainty and the learning-effect


  • Hwang, In Chang


One of the recent findings in the economics of climate change is that emissions control plays a significant role in the reduction of the tail-effect of fat-tailed uncertainty on welfare. The current paper gives another perspective: the learning-effect. The effect of emissions control on welfare is decomposed into the direct effect and the learning-effect. Although this has been known for thin-tailed uncertainty in the literature, this paper takes a different approach: the changes in temperature distributions under fat-tailed uncertainty and learning.

Suggested Citation

  • Hwang, In Chang, 2014. "Fat-tailed uncertainty and the learning-effect," MPRA Paper 53671, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:53671

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    References listed on IDEAS

    1. 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.
    2. Cyert, Richard M & DeGroot, Morris H, 1974. "Rational Expectations and Bayesian Analysis," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 521-536, May/June.
    3. Martin L. Weitzman, 2012. "GHG Targets as Insurance Against Catastrophic Climate Damages," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(2), pages 221-244, March.
    4. Antony Millner, 2013. "On Welfare Frameworks and Catastrophic Climate Risks," CESifo Working Paper Series 4442, CESifo Group Munich.
    5. Ingham, Alan & Ma, Jie & Ulph, Alistair, 2007. "Climate change, mitigation and adaptation with uncertainty and learning," Energy Policy, Elsevier, vol. 35(11), pages 5354-5369, November.
    6. Millner, Antony, 2013. "On welfare frameworks and catastrophic climate risks," Journal of Environmental Economics and Management, Elsevier, vol. 65(2), pages 310-325.
    7. Richard S. J. Tol & In Chang Hwang & Frédéric Reynès, 2012. "The Effect of Learning on Climate Policy under Fat-tailed Uncertainty," Working Paper Series 5312, Department of Economics, University of Sussex.
    8. In Hwang & Frédéric Reynès & Richard Tol, 2013. "Climate Policy Under Fat-Tailed Risk: An Application of Dice," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 56(3), pages 415-436, November.
    9. Martin Weitzman, 2013. "A Precautionary Tale of Uncertain Tail Fattening," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 55(2), pages 159-173, June.
    10. Robert S. Pindyck, 2011. "Fat Tails, Thin Tails, and Climate Change Policy," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(2), pages 258-274, Summer.
    11. In Chang Hwang & Richard S.J. Tol & Marjan W. Hofkes, 2013. "Active Learning about Climate Change," Working Paper Series 6513, Department of Economics, University of Sussex.
    12. Ulph, Alistair & Ulph, David, 1997. "Global Warming, Irreversibility and Learning," Economic Journal, Royal Economic Society, vol. 107(442), pages 636-650, May.
    13. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
    14. Kolstad, Charles D., 1996. "Fundamental irreversibilities in stock externalities," Journal of Public Economics, Elsevier, vol. 60(2), pages 221-233, May.
    15. Pindyck, Robert S., 2012. "Uncertain outcomes and climate change policy," Journal of Environmental Economics and Management, Elsevier, vol. 63(3), pages 289-303.
    16. Mort Webster, 2002. "The Curious Role of "Learning" in Climate Policy: Should We Wait for More Data?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 97-119.
    17. 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.
    18. Leach, Andrew J., 2007. "The climate change learning curve," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1728-1752, May.
    19. repec:eee:resene:v:48:y:2017:i:c:p:1-18 is not listed on IDEAS
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    More about this item


    Climate policy; deep uncertainty; Dismal Theorem; tail-effect; learning-effect;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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