Dundee Discussion Papers in Economics 258: Dark clouds or silver linings? Knightian uncertainty and climate change

Yu-Fu Chen, Michael Funke, Nicole Glannemann

    Research output: Working paper/PreprintDiscussion paper

    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.
    Original languageEnglish
    PublisherUniversity of Dundee
    Number of pages25
    Publication statusPublished - Aug 2011

    Publication series

    NameDundee Discussion Papers in Economics
    PublisherUniversity of Dundee
    No.258
    ISSN (Print)1473-236X

    Keywords

    • Climate change
    • Knightian uncertainty
    • -ambiguity
    • Real options

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