Environmental policy under model uncertainty: a robust optimal control approach

Michael Funke and Michael Paetz

Quantitative Macroeconomics Working Papers from Hamburg University, Department of Economics

Abstract: The design of optimal environmental policy inherits model uncertainty.We investigate the consequences in a simple linear model, where the aim of the policymaker is to stabilise the atmospheric content of carbon. We study how decisionmakers’ concerns about robustness alters policy using the Hansen and Sargent (2003, 2008) approach. The analysis shows that a policymaker, who fears about model misspecification should react more aggressively to changes in the stock of atmospheric carbon and reduce emissions stronger.

Keywords: Robust Control; Knightian Uncertainty; Monetary Policy; Forward-Looking Expectations; Model Uncertainty (search for similar items in EconPapers)
Date: 2011-08
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Environmental policy under model uncertainty: a robust optimal control approach (2011)
Working Paper: Environmental Policy Under Model Uncertainty: A Robust Optimal Control Approach (2007)
Working Paper: Environmental Policy Under Model Uncertainty: A Robust Optimal Control Approach (2007)
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