Quasi-option value and climate policy choices

Minh Ha-Duong

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Abstract: In the climate change issue, the environmental irreversibility (risk of an acceleration of mitigation policies if the worse happen) has to be balanced with the investment irreversibility (risk of over-cautious policies). To explore this balance, we define an option value for a precautionary climate policy. Using the simplest decision-making model, we expose how option value relates to the expected value of future information. Using quantitative data from an integrated as sessment model, we find that most of the times the environmental irreversibility dominates the investment irreversibility. For all cases explored here, the order of magnitude of the option value was significant, about 50% of the opportunity cost.

Keywords: Option value; Climate change; Irreversibility (search for similar items in EconPapers)
Date: 1998
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00002457v1
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Citations: View citations in EconPapers (24)

Published in Energy Economics, 1998, 20, pp.599-620

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