Abstract
This paper examines the impact of Knightian uncertainty upon optimal climate policy through the prism of a continuous-time real option modelling framework. We analytically determine optimal intertemporal climate policies under ambiguous assessments of climate
damages. Additionally, numerical simulations are provided to illustrate the properties of the model. The results indicate that increasing Knightian uncertainty accelerates climate policy, i.e. policy makers become more reluctant to postpone the timing of climate policies into the future.
damages. Additionally, numerical simulations are provided to illustrate the properties of the model. The results indicate that increasing Knightian uncertainty accelerates climate policy, i.e. policy makers become more reluctant to postpone the timing of climate policies into the future.
| Original language | English |
|---|---|
| Publisher | University of Dundee |
| Number of pages | 25 |
| Publication status | Published - Aug 2011 |
Publication series
| Name | Dundee Discussion Papers in Economics |
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| Publisher | University of Dundee |
| No. | 258 |
| ISSN (Print) | 1473-236X |
Keywords
- Climate change
- Knightian uncertainty
- -ambiguity
- Real options
