AffiliationDepartment of Economics, University of Arizona
Social cost of carbon
MetadataShow full item record
PublisherELSEVIER SCIENCE BV
CitationAmbiguous tipping points 2016, 132:5 Journal of Economic Behavior & Organization
Rights© 2016 Elsevier B.V. All rights reserved.
Collection InformationThis 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 email@example.com.
AbstractWe 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.
Note36 month embargo; Available online 28 March 2016
VersionFinal accepted manuscript
SponsorsNational Science Foundation through the Network for Sustainable Climate Risk Management [GEO-1240507]