Global Warming and Fat Tailed-uncertainty: Rethinking the Timing and Intensity of Climate Policy

Yu-Fu Chen and Michael Funke

No 2012-41, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

Abstract: The possibility of low-probability extreme natural events has reignited the debate over the optimal intensity and timing of climate policy. In this paper, we contribute to the literature by assessing the implications of low-probability extreme events on environmental policy in a continuous-time real options model with tail risk. In a nutshell, our results indicate the importance of tail risk and call for foresighted pre-emptive climate policies.

Keywords: Climate Policy; Extreme Events; Real Options; Levy process (search for similar items in EconPapers)
Date: 2012-06
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Working Paper: GLOBAL WARMING AND FAT TAILED-UNCERTAINTY: RETHINKING THE TIMING AND INTENSITY OF CLIMATE POLICY (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:edn:sirdps:665

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