London School of Economics
Aldwych London WC2A 2AE
Institutional Affiliation: London School of Economics
NBER Working Papers and Publications
|June 2010||Ambiguity and Climate Policy|
with , : w16050
Economic evaluation of climate policy traditionally treats uncertainty by appealing to expected utility theory. Yet our knowledge of the impacts of climate change may not be of sufficient quality to justify probabilistic beliefs. In such circumstances it has been argued that the axioms of expected utility theory may not be the the correct standard of rationality. By contrast several recently-proposed axiomatic frameworks account for ambiguous beliefs. We follow this approach and apply static and dynamic versions of a smooth ambiguity model to climate policy, obtaining general results on the comparative statics of optimal abatement and ambiguity aversion and illustrating this sufficient condition in some simple examples. Greater ambiguity aversion may lead to more or less abatement dependin...
Published: “Scientific ambiguity and climate policy”, with Geoffrey Heal and Simon Dietz, Environmental and Resource Economics, Vol 55 (1), pp 21-46, 2013. Also appeared as NBER Working Paper no. 16050.