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Active Learning about Climate Change

  • In Chang Hwang

    (Institute for Environmental Studies, Vrije Universiteit, Amsterdam, The Netherlands)

  • Richard S.J. Tol

    ()

    (Department of Economics, University of Sussex, Falmer, United Kingdom
    Institute for Environmental Studies, Vrije Universiteit, Amsterdam, The Netherlands
    Department of Spatial Economics, Vrije Universiteit, Amsterdam, The Netherlands
    Tinbergen Institute, Amsterdam, The Netherlands)

  • Marjan W. Hofkes

    (Department of Economics, Vrije Universiteit, Amsterdam, The Netherlands
    Institute for Environmental Studies, Vrije Universiteit, Amsterdam, The Netherlands
    Department of Spatial Economics, Vrije Universiteit, Amsterdam, The Netherlands)

We develop a climate-economy model with active learning. We consider three ways of active learning: improved observations, adding observations from the past and improved theory from climate research. From the model, we find that the decision maker invests a significant amount of money in climate research. Expenditures to increase the rate of learning are far greater than the current level of expenditure on climate research, as it helps in taking improved decisions. The optimal carbon tax for the active learning model is nontrivially lower than that for the uncertainty model and the passive learning model.

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File URL: http://www.sussex.ac.uk/economics/documents/wps-65-2013.pdf
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Paper provided by Department of Economics, University of Sussex in its series Working Paper Series with number 6513.

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Date of creation: Nov 2013
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Handle: RePEc:sus:susewp:6513
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