The effect of uncertainty on decision making about climate change mitigation: a numerical approach of stochastic control

Thomas S. Lontzek and Daiju Narita

No 1539, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: We apply standardized numerical techniques of stochastic optimization (Judd [1998]) to the climate change issue. The model captures the feature that the effects of uncertainty are different with different levels of agent's risk aversion. A major finding is that the effects of stochasticity differ even in sign as to emission control with varying parameters: introduction of stochasticity may increase or decrease emission control depending on parameter settings, in other words, uncertainties of climatic trends may induce people's precautionary emission reduction but also may drive away money from abatement.

Keywords: Climate change and uncertainties; stochastic control; climate policy (search for similar items in EconPapers)
JEL-codes: C63 D81 Q54 (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1539

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