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lemoine_traeger_ambiguity_tipp ...
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Final Accepted Manuscript
Affiliation
Department of Economics, University of ArizonaIssue Date
2016-12Keywords
Tipping pointAmbiguity
Knightian uncertainty
Threshold
Regime shift
Climate
Hazard
Integrated assessment;
Dynamic programming
Social cost of carbon
Carbon tax
Metadata
Show full item recordPublisher
ELSEVIER SCIENCE BVCitation
Ambiguous tipping points 2016, 132:5 Journal of Economic Behavior & OrganizationRights
© 2016 Elsevier B.V. All rights reserved.Collection Information
This item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at repository@u.library.arizona.edu.Abstract
We analyze the policy implications of aversion to Knightian uncertainty (ambiguity) about the possibility of tipping points. We demonstrate two channels through which uncertainty aversion affects optimal policy in the general setting. The first channel relates to the policy's effect on the probability of tipping, and the second channel to its differential impact in the pre- and post-tipping regimes. We then extend a recursive dynamic model of climate policy and tipping points to include uncertainty aversion. Numerically, aversion to Knightian uncertainty in the face of an ambiguous tipping point increases the optimal tax on carbon dioxide emissions, but only by a small amount.Note
36 month embargo; Available online 28 March 2016ISSN
01672681Version
Final accepted manuscriptSponsors
National Science Foundation through the Network for Sustainable Climate Risk Management [GEO-1240507]Additional Links
http://linkinghub.elsevier.com/retrieve/pii/S0167268116300221ae974a485f413a2113503eed53cd6c53
10.1016/j.jebo.2016.03.009