endogenous growth convexity of damage and climate risk how nordhaus framework supports deep cuts in carbon emissions to slow or not to slow nordhaus 1991 was the first economic appraisal of greenhouse gas emissions abatement and founded a large literature on a topic of worldwide importance we offer our assessment of the original article and trace its legacy in particular nordhaus s later series of dice models from this work many have drawn the conclusion that an efficient global emissions abatement policy comprises modest and modestly increasing controls we use dice itself to provide an initial illustration that if the analysis is extended to take more strongly into account three essential elements of the climate problem the endogeneity of growth the convexity of damage and climate risk optimal policy comprises strong controls

irreversible investment with regime shifts under the real options approach to investment under uncertainty agents formulate optimal policies under the assumption that firms growth prospects do not vary over time this paper proposes and solves a model of investment decisions in which the growth rate and volatility of the decision variable shift between different states at random times a value maximizing investment policy is derived such that in each regime the firm s investment policy is optimal and recognizes the possibility of a regime shift under this policy investment is intermittent and increases with marginal q moreover investment typically is very small but in some states the capital stock jumps implications for marginal q and the user cost of capital are also examined

scientific ambiguity and climate policy economic evaluation of climate policy traditionally treats uncertainty by appealing to expected utility theory yet our knowledge of the impacts of climate policy may not be of sufficient quality to be described by unique probabilistic beliefs in such circumstances it has been argued that the axioms of expected utility theory may not be the correct standard of rationality by contrast several axiomatic frameworks have recently been proposed that account for ambiguous knowledge in this paper we apply static and dynamic versions of a smooth ambiguity model to climate mitigation policy we obtain a general result on the comparative statics of optimal abatement and ambiguity aversion and then extend our analysis to a more realistic dynamic setting where we introduce scientific ambiguity into the well known dice model of the climate economy system for policy relevant exogenous mitigation policies we show that the value of emissions abatement increases as ambiguity aversion increases and that this ambiguity premium can in some plausible cases be very large in these cases the effect of ambiguity aversion on welfare is comparable to that of other much studied welfare parameters thus ambiguity aversion may be an important neglected aspect of climate change economics and seems likely to provide another argument for strong abatement policy

coping with a decline in energy prices macroeconomic and income distribution effects in thailand after the two first oil price shocks economists policy makers and the public got used to increases in energy prices and they expected them to continue in 1982 when the oil prices dropped all expectations needed to be revised and adjustments to the new conditions needed to be considered this paper analyzes growth macroeconomic employment and income distribution implications of a decline in oil prices using the second infrastructure asset management project siam2 alternative policies with respect to domestic energy prices is simulated the outcome of the analysis is that growth is not much affected by changes in energy prices the macroeconomic resource balance however and especially the current account deficit is sensitive dropping the domestic prices of energy with the world prices will help more employment in the formal sector real incomes per capita of all categories of households benefit in various degrees from a drop in domestic prices however if one is concerned about foreign debt accumulation and if sustained and accelerating growth is desired it will be preferable not to drop the domestic price with the world prices

regional climate change policy under positive feedbacks and strategic interactions the surface albedo feedback along with heat and moisture transport from the equator to the poles is associated with polar amplification which is a well established scientific fact the present paper extends brock and xepapadeas in eur econ rev 94 263 282 2017 to a non cooperative framework with polar amplification where regions decide emissions by maximizing own welfare this can be regarded as a case of regional non cooperation regarding climate change open loop and feedback solutions are derived and compared in terms of temperature paths and welfare with the cooperative solution carbon taxes which could bridge the gap between cooperative and non cooperative emissions path are also derived finally the framework is extended to a ramsey set up in which it is shown how the regional climate model can be coupled with standard optimal growth models numerical simulations confirm the theoretical results and provide insights about the size and the direction of deviations between the cooperative and the non cooperative solutions

climate change policy under polar amplification abstract polar amplification is an established scientific fact which has been associated with the surface albedo feedback and with heat and moisture transport from the equator to the poles in this paper we unify a two box climate model which allows for heat and moisture transport from the southern region to the northern region with an economic model of welfare optimization our main contribution is to show that by ignoring spatial heat and moisture transport and the resulting polar amplification the regulator may overestimate or underestimate the tax on greenhouse gas emissions the direction of bias depends on the relations between marginal damages from temperature increase in each region we also determine the welfare cost when a regulator mistakenly ignores polar amplification numerical simulations confirm our theoretical results while ballpark estimates indicate that the tax bias could be as high as 20 while welfare cost could reach 2 of global effective steady state consumption

short run energy economy interactions in egypt abstract this paper discusses the short run adjustment mechanism of the egyptian economy to changes in the domestic price of oil the effects of oil price increases have been analysed in the framework of a short run macroeconomic model with an explicit treatment of energy the results suggest that a reduction in petroleum use induced by a rise in the price of oil will impose difficult adjustment problems for the economy in the short run in terms of increase in inflation fall in the share of wage income and sharp output losses the analysis also indicates that energy demand management through appropriate petroleum pricing strategy cannot bring about desirable impacts on the economy unless efforts are made to reduce cost pressures originating from other energy sectors

pricing carbon and adjusting capital to fend off climate catastrophes the optimal reaction to a potential productivity shock as a consequence of climate tipping is to substantially tax carbon in order to curb the risk of tipping but to adjust capital as well in order to smooth consumption when tipping occurs we also allow for conventional marginal climate damages and decompose the optimal carbon tax in two catastrophe components and the conventional component we distinguish constant and increasing marginal hazards moreover the productivity catastrophe is compared with recoverable catastrophes and with a shock to the climate sensitivity finally we allow for investments in adaptation capital as an alternative to counter the potential adverse effects of climate tipping quantitatively the results are investigated with a calibrated model for the world economy

as bad as it gets how climate damage functions affect growth and the social cost of carbon the paper analyzes the effects of varying climate impacts on the social cost of carbon and economic growth we use polynomial damage functions in a model of an endogenously growing two sector economy the framework includes nonrenewable natural resources which cause greenhouse gas emissions pollution stock harms capital and reduces economic growth we find a big effect of the selected damage function on the social cost of carbon and a significant impact on the growth rate in our calibration a quartic damage function raises the social cost of carbon by more than a factor of ten compared to the linear function in the social optimum the growth rate remains positive even when the damage function is highly convex we test the robustness of the results by adding pollution decay lowering the elasticity of intertemporal substitution and addressing uncertainty which does not alter our results we find that high marginal climate damages require stringent climate policies but do not preclude positive economic growth despite convexity provided that policies are designed in an efficient manner

a portfolio approach to climate investments capm and endogenous risk is there a role for investments in climate change mitigation despite low expected return we use a model of intertemporal expected utility maximisation to analyse this question similar to the capital asset pricing model capm the rate of return depends on the correlation of risk between the return on investments in climate change mitigation and the market portfolio but in contrast to the classical capm we admit the fact that economic and environmental systems are jointly determined implying that environmental risk is endogenous therefore investments in climate change mitigation may reduce risk via self protection and self insurance if risk reduction is accounted for in cost benefit evaluations climate investments may be justified despite low expected return these aspects of climate investments are not however communicated via standard cost benefit analyses of climate policy optimal climate policy may therefore be more ambitious than previously considered

pollution control under a possible future shift in environmental preferences abstract we examine how the possibility of a future shift in environmental preferences affects optimal pollution emissions for example is a more stringent carbon cap called for if excessive carbon emissions today may trigger a shift toward greener preferences in the future in contrast to the related literature which largely focuses on regime shifts in damages not preferences we find that the possibility of a shift in environmental preferences can induce higher or lower optimal current emissions this hinges on an economically interesting interplay between the magnitude of the possible shift whether the shift is endogenous and the magnitude of environmental damages this helps reconcile the tension between the conservationists view of pollution reduction to reduce damage and lessen the likelihood of regime shift and the traditional economic rationale emphasizing risk and discounting

welfare measurement under threats of environmental catastrophes abstract welfare measures under threats of environmental catastrophes are studied using the parable apparatus of weitzman and lofgren on the welfare significance of green accounting as taught by parable j environ econ manage 32 1997 139 153 the occurrence probability of the catastrophic events is driven at least partly by anthropogenic activities such as natural resource exploitation without external effects the green nnp is a genuine welfare measure vis a vis a particular parable economy often however the occurrence hazard constitutes a public bad treated as an externality by agents who ignore their own contribution to its accumulation in such cases the green nnp although accounting for the event hazard rate per se fails to properly internalize future effects on the hazard rate of current economic activities and as a result overestimates welfare the bias term associated with the green nnp is derived and expressed in a simple and interpretable form

economy wide estimates of the implications of climate change sea level rise the economy wide implications of sea level rise in 2050 are estimated using a static computable general equilibrium model this allows for a better estimate of the welfare effects of sea level rise than the common direct cost estimates and for an estimate of the impact of sea level rise on greenhouse gas emissions overall general equilibrium effects increase the welfare costs of sea level rise but not necessarily in every sector or region in the absence of coastal protection economies that rely most on agriculture are hit hardest although energy is substituted for land overall energy consumption falls with the shrinking economy hurting energy exporters with full coastal protection gdp increases particularly in regions with substantial dike building but utility falls least in regions that protect their coasts and export energy energy prices rise and energy consumption falls the costs of full protection exceed the costs of losing land the results also show direct costs the usual method for estimating welfare changes due to sea level rise are a bad approximation of the general equilibrium welfare effects previous estimates of the economic impact of sea level rise are therefore biased

nuclear power externalities and non standard pigouvian taxes the external effects arising from the use of nuclear power are in a fundamental way related to uncertainty in this paper we locate these external effects and derive a dynamic pigouvian tax in order to make the decentralized economy support the command optimum another interesting result is that a small constant energy tax which we interpret as a second best policy can take the decentralized economy reasonably close to the command optimum

climatic tipping points and optimal fossil fuel use the economics of climate change is characterized by many uncertainties regarding for instance climate dynamics economic damages and potentially irreversible climate catastrophes using an optimal growth model of a fossil fuel driven economy subject to climate externalities and potentially irreversible climatic regime shifts this paper contributes to the understanding of how the risk of such events impacts on optimal fossil fuel use carbon taxes and fossil fuel prices over time we show that in excess to an increase in the expected present value of marginal damages and an increase in the probability of triggering the event there also exists a third opposing effect this effect comes from the fall in value of remaining fossil fuel reserve which results from the potential regime shift which may or may not occur sometime in the future and implies that optimal fossil fuel policy shifts towards using more resources early on this effect is related to the idea of the green paradox we prove the existence of this effect and show under which circumstances it can become quantitatively important numerically the green paradox effect seems to be somewhat smaller than but comparable in size to the increase in expected marginal damages in general our findings highlight the importance of considering the supply side impacts on climate policy in response to catastrophic climate events

energy balance climate models and general equilibrium optimal mitigation policies in a general equilibrium model of the world economy we develop a two dimensional energy balance climate model featuring heat diffusion and anthropogenic forcing driven by global fossil fuel use across the sphere of the earth this introduces an endogenous location dependent temperature function driving spatial characteristics in terms of location dependent damages resulting from local temperature anomalies into the standard climate economy framework we solve the social planner s problem and characterize the competitive equilibrium for two polar cases differentiated by the degree of market integration we define optimal taxes on fossil fuel use and how they may implement the planning solution our results suggest that if the implementation of international transfers across latitudes is not possible then optimal taxes are in general spatially non homogeneous and may be lower at poorer latitudes the degree of spatial differentiation of optimal taxes depends on heat transportation by employing the properties of the spatial model we show by numerical simulations how the impact of thermal transport across latitudes on welfare can be studied

averting catastrophes the strange economics of scylla and charybdis faced with numerous potential catastrophes nuclear and bioterrorism mega viruses climate change and others which should society attempt to avert a policy to avert one catastrophe considered in isolation might be evaluated in cost benefit terms but because society faces multiple catastrophes simple cost benefit analysis fails even if the benefit of averting each one exceeds the cost we should not necessarily avert them all we explore the policy interdependence of catastrophic events and develop a rule for determining which catastrophes should be averted and which should not jel d61 q51 q54

debt versus equity under asymmetric information in a world of asymmetric information in which only the insiders know the quality of the firm it is claimed that debt even if it is risky is more advantageous than outside equity because issuance of debt is less attractive to inferior firms the advantage to debt arises from the fact that it can keep unprofitable firms out of the market thus improving the average quality of firms in the market this advantage exists even if the firms cannot be perfectly sorted in the signaling equilibrium

the economy climate change and infectious diseases links and policy implications this short paper provides a modeling framework for unifying the economy climate change and the outbreak of infectious diseases such as the recent covid 19 pandemic we stress that continuous growth of consumption activities capital accumulation and climate change could increase the potential of the epidemic its contact number or the probability of its arrival this framework of analysis allows us to think of infectious disease policies in two stages in the short run containment policies like social distancing could help to stop the epidemic in the medium and the long run economic policies could help to reduce the potential of the epidemic or the probability of its emergence

why the far distant future should be discounted at its lowest possible rate abstract a critical feature of the distant future is currently unresolvable uncertainty about what will then be the appropriate rate of return on capital to use for discounting this paper shows that there is a well defined sense in which the lowest possible interest rate should be used for discounting the far distant future part of any investment project some implications are discussed for evaluating long term environmental projects or activities like measures to mitigate the possible effects of global climate change

non cooperative and cooperative responses to climate catastrophes in the global economy a north south perspective the optimal response to a potential productivity shock which becomes more imminent with global warming is to have carbon taxes to curb the risk of a calamity and to accumulate precautionary capital to facilitate smoothing of consumption this paper investigates how differences between regions in terms of their vulnerability to climate change and their stage of development affect the cooperative and non cooperative responses to this aspect of climate change it is shown that the cooperative response to these stochastic tipping points requires converging carbon taxes for developing and developed regions the non cooperative response leads to a bit more precautionary saving and diverging carbon taxes we illustrate the various outcomes with a simple stylized north south model of the global economy

abrupt positive feedback and the social cost of carbon optimal climate policy should act in a precautionary fashion to deal with tipping points that occur at some future random moment the optimal carbon tax should include an additional component on top of the conventional present discounted value of marginal global warming damages this component increases with the sensitivity of the hazard to temperature or the stock of atmospheric carbon if the hazard of a catastrophe is constant no correction is needed of the usual pigouvian tax the results are applied to a tipping point resulting from an abrupt and irreversible release of greenhouse gases from the ocean floors and surface of the earth which set in motion a positive feedback loop convex enough hazard functions cause overshooting of the carbon tax but a linear hazard function gives rise to undershooting a more convex hazard function and a high discount rate speed up adjustment

consumption pollution tradeoffs in an environment vulnerable to pollution related catastrophic collapse abstract this paper considers the consequences of an avoidable risk of irreversible environmental catastrophe for society s optimal long run consumption pollution tradeoffs the risk is assumed to be a nondecreasing function of pollution concentration which evolves as a dynamic environmental renewal process the main objective of the paper is to derive qualitative insights regarding the effects of such risk on optimal management

pricing uncertainty induced by climate change geophysicists examine and document the repercussions for the earth s climate induced by alternative emission scenarios and model specifications using simplified approximations they produce tractable characterizations of the associated uncertainty meanwhile economists write highly stylized damage functions to speculate about how climate change alters macroeconomic and growth opportunities how can we assess both climate and emissions impacts as well as uncertainty in the broadest sense in social decision making we provide a framework for answering this question by embracing recent decision theory and tools from asset pricing and we apply this structure with its interacting components to a revealing quantitative illustration

climate tipping and economic growth precautionary capital and the price of carbon the optimal reaction to a climate tipping point that becomes more imminent with global warming is to be precautionary in adjusting capital to prepare for the calamity and to price carbon to make catastrophic change less imminent the saving response can be positive or negative if the mean lag for the impact of the catastrophe is long enough the saving response will be negative because the precautionary return in the keynes ramsey rule becomes negative we also show the separate effects of the elasticity of intertemporal substitution eis and the relative risk aversion rra using duffie epstein preferences focusing on a productivity catastrophe we calibrate our model and show how sensitive the policy responses are to the degrees of eis and rra the trend rate of economic growth the hazard rate and how long it takes for the catastrophe to have its full impact

pollution control with uncertain stock dynamics when and how to be precautious abstract the precautionary principle pp applied to environmental policy stipulates that in the presence of uncertainty society must take robust preventive action to guard against worst case outcomes it follows that the higher the degree of uncertainty the more aggressive this preventive action should be this normative maxim is explored in the case of a stylized dynamic model of pollution control with uncertain in the knightian sense stock dynamics using the robust control framework of hansen and sargent 12 optimal investment in damage control is found to be increasing in the degree of uncertainty thus confirming the conventional pp wisdom optimal mitigation decisions however need not always comport with the pp in particular when damage control investment is both sufficiently cheap and sensitive to changes in uncertainty damage control investment and mitigation may act as substitutes and a pp with respect to the latter can be unambiguously irrational the theoretical results are applied to a calibrated linear quadratic model of climate change the analysis suggests that a reversal of the pp with respect to mitigation while theoretically possible is very unlikely

malthus in the light of climate change abstract to reconsider the malthusian predictions of natural limits to economic development the paper develops a multi sector growth model with exhaustible resource extraction investments in physical and knowledge capital climate change and endogenous fertility economic growth is driven by endogenous innovations which increase in the availability and productivity of research labour poor substitution of natural resources triggers sectoral change climate change is the result of polluting resource use which is like consumption and investments based on the intertemporal optimization of the households highlighting the importance of bounded resource supply and of rational extraction decisions i show that climate change is independent of population growth in steady state and there is no causal relationship between climate and population during transition to steady state the consumption per capita growth rate rises in the innovation rate and the output elasticities of labour and capital in the different sectors unlike climate policy population policy is not warranted it may be counterproductive because labour is crucial for the research sector

corporate earnings and financings an empirical analysis this article examines the long term behavior of corporate earnings around three corporate financing events sales of common stock convertible bonds and straight bonds the article shows that earnings declined for all issuers and that more capital is raised the larger the earnings decline these findings indicate that external financings are motivated by earnings declines no evidence is found of a relationship between the size of the subsequent earnings downturn or the amount of capital raised and stock price reactions to the financing announcements these findings suggest that security sales did not systematically provide new information about either the magnitude of subsequent earnings downturn or the amount of financing copyright 1990 by the university of chicago

accounting for global warming risks resource management under event uncertainty abstract optimal management of atmospheric pollution is discussed with a special emphasis on the uncertainty concerning the occurrence of undesirable events associated with the greenhouse effect the uncertainty considered here stems from our ignorance of the exact pollution level required to trigger the event rather than from the genuinely stochastic nature of the processes involved taking atmospheric pollution level as the state variable it is found that uncertainty implies the existence of an equilibrium interval within which the emission rate of the greenhouse gases should be kept equal to the natural removal rate of these gases processes initiated outside the equilibrium interval must converge monotonically to its nearest endpoint the determination of the interval requires no knowledge of the optimal policy in contrast ignoring event occurrence risk implies a single equilibrium level attracting the optimal process from any initial level

spatial climate economic models in the design of optimal climate policies across locations we couple a one dimensional energy balance climate model with heat transportation across latitudes with an economic growth model we derive temperature and damage distributions across locations and optimal taxes on fossil fuels which in contrast to zero dimensional integrated assessment models account for cross latitude externalities we analyze the impact of welfare weights on the spatial structure of optimal carbon taxes and identify conditions under which these taxes are spatially nonhomogeneous and are lower in latitudes with relatively lower per capita income populations we show the way that heat transportation affects local economic variables and taxes and locate sufficient conditions for optimal mitigation policies to have rapid ramp up initially and then decrease over time

optimal management with potential regime shifts we analyze how the threat of a potential future regime shift affects optimal management we use a simple general growth model to analyze four cases that involve combinations of stock collapse versus changes in system dynamics and exogenous versus endogenous probabilities of regime shift prior work in economics has focused on stock collapse with endogenous probabilities and reaches ambiguous conclusions on whether the potential for regime shift will increase or decrease intensity of resource use and level of resource stock we show that all other cases yield unambiguous results in particular with endogenous probability of regime shift that affects system dynamics the potential for regime shift causes optimal management to become precautionary in the sense of maintaining higher resource stock levels

carbon prices for the next hundred years this paper examines the socially optimal pricing of carbon emissions over time when climate change impacts are unknown potentially high consequence events the carbon price tends to increase with income but learning about impacts or their absence decouples the carbon price from income growth the price should grow faster than the economy if the past warming is not substantial enough for learning the true long run social cost it grows slower than the economy as soon as the warming generates information about events that could have arrived but have not done so a quantitative assessment shows that the price grows roughly at the rate of the economy for the next 100 years

optimal taxes on fossil fuel in general equilibrium we analyze a dynamic stochastic general equilibrium dsge model with an externality through climate change from using fossil energy our central result is a simple formula for the marginal externality damage of emissions or equivalently for the optimal carbon tax this formula which holds under quite plausible assumptions reveals that the damage is proportional to current gdp with the proportion depending only on three factors i discounting ii the expected damage elasticity how many percent of the output flow is lost from an extra unit of carbon in the atmosphere and iii the structure of carbon depreciation in the atmosphere thus the stochastic values of future output consumption and the atmospheric co2 concentration as well as the paths of technology whether endogenous or exogenous and population and so on all disappear from the formula we find that the optimal tax should be a bit higher than the median or most well known estimates in the literature we also formulate a parsimonious yet comprehensive and easily solved model allowing us to compute the optimal and market paths for the use of different sources of energy and the corresponding climate change we find coal rather than oil to be the main threat to economic welfare largely due to its abundance we also find that the costs of inaction are particularly sensitive to the assumptions regarding the substitutability of different energy sources and technological progress

a review of the stern review on the economics of climate change the stern review calls for immediate decisive action to stabilize greenhouse gases because the benefits of strong early action on climate change outweighs the costs the economic analysis supporting this conclusion consists mostly of two basic strands the first strand is a formal aggregative model that relies for its conclusions primari ly upon imposing a very low discount rate concerning this discount rate aspect i am skeptical of the review s formal analysis but this essay points out that we are actual ly a lot less sure about what interest rate should be used for discounting climate change than is commonly acknowledged the review s second basic strand is a more intuitive argument that it might be very important to avoid possibly large uncertain ties that are difficult to quantify concerning this uncertainty aspect i argue that it might be recast into sound analytical reasoning that might justify some of the review s conclusions the basic issue here is that spending money to slow global warming should perhaps not be conceptualized primarily as being about consump tion smoothing as much as being about how much insurance to buy to offset the small change of a ruinous catastrophe that is difficult to compensate by ordinary savings

optimal regulation of eutrophying lakes fjords and rivers in the presence of threshold effects eutrophication is a biological process that has an unfavorable economic impact on the economic value of the water basins it affects eutrophication depends on thresholds effects and optimal policies for the regulation of eutrophication must take this into account such optimal policies are derived in the present article by utilizing a novel technique in optimal control theory this technique facilitates a proper analysis of deterministic stock pollutants with thresholds effects a topic it is argued has been poorly understood in the literature copyright 2001 oxford university press

uncertainty and irreversibility in groundwater resource management abstract optimal exploitation of renewable groundwater resources when extraction affects the probability of occurrence of an irreversible event is studied the term irreversible signifies that the event occurrence renders the resource obsolete it is found that uncertainty concerning the event occurrence has a profound effect under certainty when the stock level below which the event occurrence has a profound effect the optimal state process converges to a unique equilibrium state under uncertainty when the event occurrence level is unknown we identify equilibrium intervals and show that optimal processes initiated elsewhere converge to a boundary of one of these intervals inside an equilibrium interval the expected loss due to the event occurrence is so high that it does not pay to extract in excess of recharge even though under certainty doing so would be beneficial

robustness and u s monetary policy experimentation we study how a concern for robustness modifies a policy maker s incentive to experiment a policy maker has a prior over two submodels of inflationunemployment dynamics one submodel implies an exploitable trade off the other does not bayes law gives the policy maker an incentive to experiment the policy maker fears that both submodels and his prior probability distribution over them are misspecified we compute decision rules that are robust to misspecifications of each submodel and of the prior distribution over submodels we compare robust rules to ones that cogley colacito and sargent 2007 computed assuming that the models and the prior distribution are correctly specified we explain how the policy maker s desires to protect against misspecifications of the submodels on the one hand and misspecifications of the prior over them on the other have different effects on the decision rule

temperature and growth a panel analysis of the united states this paper documents that seasonal temperatures have significant and systematic effects on the u s economy both at the aggregate level and across a wide crosssection of economic sectors this effect is particularly strong for the summer an increase of 1 f in the average summer temperature is associated with a reduction in the annual growth rate of state level output of 0 15 to 0 25 percentage points when these estimates are combined with projected increases in seasonal temperatures it is found that a reduction of u s economic growth by up to one third could occur over the next century

climate engineering under deep uncertainty abstract climate engineering and in particular solar radiation management srm is attracting increasing attention as a climate policy option however its potentially strategic nature and unforeseen side effects provide major policy and scientific challenges we study the role of srm in a two country model with the notable feature of deep uncertainty modeled as model misspecification of srm side effects we find that deep uncertainty leads to a reduction in srm deployment under both global cooperation and strategic nash behavior and that the effect is larger if countries act strategically furthermore we demonstrate that if countries have different model confidence about srm impacts then the more confident country will engage more strongly in using srm leading this country to free drive

raw materials profits and the productivity slowdown a factor price frontier framework is used to clarify the analogy of an increase decrease in raw material prices with autonomous technological regress progress factor price profiles are estimated for the manufacturing sector of the united states the united kingdom germany and japan the production model in conjunction with estimates obtained from the factor price frontier attributes much of the slowdown in manufacturing productivity to the rise in relative raw material prices part of the apparent productivity riddle may have to do with the use of double deflated national accounting measures of value added which have an inherent measurement bias

scientific progress and irreversibility an economic interpretation of the precautionary principle abstract we consider the problem of the optimal use of a good whose consumption can produce damages in the future scientific progress is made over time that provides information on the distribution of the intensity of damages we show that this progress induces earlier prevention effort only if prudence is larger than twice absolute risk aversion this paper thus identifies the class of quite restrictive but plausible conditions such that scientific uncertainties justify an immediate reduction of the consumption of a potentially toxic substance

pollution control in an uncertain environment abstract the effects of the threat of occurrence of environmental catastrophes on optimal pollution control are considered recent analysis of irreversible events is extended to two types of reversible events single occurrence and multiple occurrence recurrent events while it is possible that the threat of irreversible events induces more pollution we show that reversible events under quite general conditions induce more conservation less pollution the analysis is carried out via a simple method the h method to identify optimal steady states by comparing steady state policies with small variations from them for recurrent events the optimal state process must approach a unique steady state from any initial level in this case the h method characterizes the dynamic behavior of the optimal state process without actually solving for it

regulating environmental threats environmental consequences of natural resource exploitation often entail threats of future occurrences of detrimental abrupt events rather than or in addition to inflicting a damage gradually the possibility of abrupt occurrence of climate change related calamities is a case in mind the uncertainty associated with the realization of these threats and their public bad nature complicate the design of optimal economic response we derive a pigouvian hazard tax schedule that implements the socially optimal outcome the tax is based on the expected cost of the hazard generating activities and serves to reduce hazardous emissions well in advance of the catastrophic occurrence a numerical example illustrates possible effects of the proposed regulation scheme implications for climate policy are discussed

influence of economic factors on the valuation effects of debt offerings the obejective of this paper is to determine whether the share price responses to debt offerings are influenced cross sectially by economic factors we develop hypotheses that share price responses are inversely related to nominal interest rates and to the issuing firm s stock price level relative to the market and positively related to economic growth after controlling for firm specific characteristics used in previous studies we find that the share price responses to straight debt offerings are not significantly related to the nominal interest rates or to the issuing firm s relative stock price level but are positively related to the economic growth we also find that share price responses to convertible debt offerings are significantly related to the nominal interest rates the issuing firm s relative stock price level and economic growth in the manner hypothesized these results imply that the signal emitted by a firm s debt offering can be influecnced not only by firm specific characteristics

optimal climate change mitigation under long term growth uncertainty stochastic integrated assessment and analytic findings abstract economic growth over the coming centuries is one of the major determinants of today s optimal greenhouse gas mitigation policy at the same time long run economic growth is highly uncertain this paper is the first to evaluate optimal mitigation policy under long term growth uncertainty in a stochastic integrated assessment model of climate change the sign and magnitude of the impact depend on preference characteristics and on how damages scale with production we explain the different mechanisms driving optimal mitigation under certain growth under uncertain technological progress in the discounted expected utility model and under uncertain technological progress in a more comprehensive asset pricing model based on epstein zin weil preferences in the latter framework the dominating uncertainty impact has the opposite sign of a deterministic growth impact the sign switch results from an endogenous pessimism weighting all of our numeric scenarios use a dice based assessment model and find a higher optimal carbon tax than the deterministic dice base case calibration

market liquidity hedging and crashes in the absence of significant news hedging strategies were blamed for the stock market crash of october 1987 but traditional models cannot explain how a relatively small amount of selling could cause so large a price drop the authors develop a rational expectations model in which prices play an important role in shaping expectations markets are much less liquid in their model than in traditional models discontinuities or crashes can occur even with relatively little hedging the model is consistent with theories as disparate as keynes beauty contest insights and thom s catastrophe analysis and suggests means to reduce volatility copyright 1990 by american economic association

global warming and a potential tipping point in the atlantic thermohaline circulation the role of risk aversion the risk of catastrophes is one of the greatest threats of climate change yet conventional assumptions shared by many integrated assessment models such as dice lead to the counterintuitive result that higher concern about climate change risks does not lead to stronger near term abatement efforts this paper examines whether this result still holds in a refined dice model that employs the epstein zin utility specification and that is fully coupled with a dynamic tipping point model describing the evolution of the atlantic thermohaline circulation thc risk is captured by the possibility of a future collapse of the circulation and it is nourished by fat tailed uncertainty about climate sensitivity this uncertainty is assumed to resolve in the middle of the second half of this century and the near term abatement efforts which are undertaken before that point of time can be adjusted afterwards these modelling choices allow posing the question of whether aversion to this specific tipping point risk has a significant effect on near term policy efforts the simulations however provide evidence that it has little effect for the more likely climate sensitivity values a collapse of the circulation would occur in the more distant future in this case acting after learning can prevent the catastrophe implying the remarkable insensitivity of the near term policy to risk aversion for the rather unlikely and high climate sensitivity values the expected damage costs are not great enough to justify taking very costly measures to safeguard the thc our simulations also provide some indication that risk aversion might have some effect on near term policy if inertia limiting the speed of decarbonisation is accounted for as it is highly uncertain how restrictive this kind of inertia will be future research might investigate the effects of risk aversion if additional uncertainty about inertia is considered

optimal fishery management with regime shifts an assessment of harvesting strategies this paper compares outcomes from informed and uninformed harvesting strategies for a fish stock with switching dynamics where the probability of switching is influenced by climate using data on sea surface temperature anomalies the impacts of climate on the conservation and the welfare that can be extracted from the stock are investigated results indicate that an informed management policy leads to stock biomass and resource rents that are up to 2 7 and 2 times higher respectively than under an uninformed policy also the fishery is open 54 longer under the informed policy the magnitude of these effects depends on the choice of the discount rate indicating that when the future is highly discounted gains from the informed policy dissipate