Robust Control in Global Warming Management: An Analytical Dynamic Integrated Assessment

Magnus Hennlock

RFF Working Paper Series from Resources for the Future

Abstract: Imperfect measurement of uncertainty (deeper uncertainty) in climate sensitivity is introduced in a two-sectoral integrated assessment model (IAM) with endogenous growth, based on an extension of DICE. The household expresses ambiguity aversion and can use robust control via a `shadow ambiguity premium' on social carbon cost to identify robust climate policy feedback rules that work well over a range such as the IPCC climate sensitivity range (IPCC, 2007a). Ambiguity aversion, in combination with linear damage, increases carbon cost in a similar way as a low pure rate of time preference. However, ambiguity aversion in combination with non-linear damage would also make policy more responsive to changes in climate data observations. Perfect ambiguity aversion results in an infinite expected shadow carbon cost and a zero carbon consumption path. Dynamic programming identifies an analytically tractable solution to the IAM.

Keywords: climate policy; carbon cost; robust control; Knightian uncertainty; ambiguity aversion; integrated asssessment (search for similar items in EconPapers)
JEL-codes: C61 C73 Q54 (search for similar items in EconPapers)
Date: 2009-05-04
New Economics Papers: this item is included in nep-ene, nep-env and nep-gth
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Citations: View citations in EconPapers (13)

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