Climate change and the irreversibility effect: combining expected utility and MaxiMin

Andreas Lange

No 02-29, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: This paper analyzes decisions on emissions of a stock pollutant under uncertainty in a two period model. Decisions are based on a weighted average of expected utility (EU) and the MaxiMin criterion. I first show that more weight on the worst case (less weight on EU) may lead to increased first period emissions. The effect of learning possibilities on emissions is not clear in general, but depends qualitatively on the weight given to MaxiMin: For the quadratic utility case, considering prospective learning increases today?s abatement effort, i.e. the ?irreversibility effect? holds, if the weight on EU is small. This contrasts standard results on the irreversibility effect for EU which translates to small weights on MaxiMin. There is, however, the possibility of a negative value of learning. It is shown that the irreversibility effect holds if and only if the value of learning is negative. Consequences for the applicability of generalized EU-MaxiMin are discussed.

Keywords: uncertainty; MaxiMin; irreversibility; learning (search for similar items in EconPapers)
JEL-codes: D60 D81 H4 (search for similar items in EconPapers)
Date: 2002
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/24777/1/dp0229.pdf (application/pdf)

Related works:
Journal Article: Climate Change and the Irreversibility Effect – Combining Expected Utility and MaxiMin (2003)
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:zbw:zewdip:868

Access Statistics for this paper

More papers in ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics (econstor@zbw-workspace.eu).