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Incorporating Investment Uncertainty into Greenhouse Policy Models

John Birge and Charles H. Rosa

The Energy Journal, 1996, vol. Volume17, issue Number 1, 79-89

Abstract: Greenhouse gas policy decisions require comprehensive understanding of atmospheric, economic, and social impacts. Many studies have considered the effects of atmospheric uncertainty in global warming, but economic uncertainties, have received Less analysis. We consider a key component of economic uncertainty: the return on investments in new technologies. Using a mathematical! programming model, we show that ignoring uncertainty in technology investment policy may lead to decreases as great as 2 percent in overall expected economic activity in the U.S. with even higher losses in possible future scenarios. These results indicate that both federal and private technology investment policies should be based on models explicitly incorporating uncertainty.

JEL-codes: F0 (search for similar items in EconPapers)
Date: 1996
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