 Information aggregation in a prediction market for climate outcomesElmira Aliakbari and Ross McKitrick Energy Economics, 2018, vol. 74, issue C, 97-106 Abstract: Two forms of uncertainty in climate policy are the wide range of estimated marginal costs and uncertainty over credibility of rival information sources. We show how a recently-proposed solution to the first problem also helps address the second. The policy is an emissions tax tied to average temperatures, coupled with permits that exempt the emitter from paying the tax in a future year. It has been shown that the resulting tax path will be correlated with future marginal damages. It has been conjectured that the permit prices will yield unbiased forecasts of the climate, which, if true, would address the second uncertainty. We confirm the conjecture by describing a trading mechanism that converges on unbiased forecasts if traders are risk-neutral. Risk aversion slows down but does not prevent convergence. We also show that the forecasts are more likely to be sufficient statistics the stronger the consensus on climate science. Keywords: Climate change; Uncertainty; Carbon tax; Tradable permits; State-contingent pricing; Prediction markets (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:74:y:2018:i:c:p:97-106 DOI: 10.1016/j.eneco.2018.06.002 Access Statistics for this article Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant More articles in Energy Economics from Elsevier |
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