Optimal Commitment Under Uncertainty: Adjustment Rules for Climate Policy

Michael Jakob () and Steffen Brunner

Strategic Behavior and the Environment, 2014, vol. 4, issue 3, 291-310

Abstract: This paper analyses the optimal type and degree of commitment to a future climate policy when damage costs from climate change are uncertain. Taking uncertainty into account, it is shown within the framework of a sequential game between firms and a regulator that commitment to an emission abatement target fails to achieve the first best optimal outcome. Though commitment to a future policy reduces the risk of time-inconsistency, it imposes costs in the form of reduced flexibility to respond to new information. If, however, the regulator commits to an adjustment rule that sets the abatement level contingent on the realization of the uncertain parameter, the first best optimal outcome can be obtained.

Keywords: Time-inconsistency; Commitment; Adjustment rule (search for similar items in EconPapers)
JEL-codes: D81 H23 H32 O31 (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://dx.doi.org/10.1561/102.00000047 (application/xml)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:now:jnlsbe:102.00000047

Access Statistics for this article

More articles in Strategic Behavior and the Environment from now publishers
Bibliographic data for series maintained by Lucy Wiseman ().