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The effect of uncertainty on decision making about climate change mitigation: a numerical approach of stochastic control

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  • Lontzek, Thomas S.
  • Narita, Daiju

Abstract

We apply standardized numerical techniques of stochastic optimization (Judd [1998]) to the climate change issue. The model captures the feature that the effects of uncertainty are different with different levels of agent's risk aversion. A major finding is that the effects of stochasticity differ even in sign as to emission control with varying parameters: introduction of stochasticity may increase or decrease emission control depending on parameter settings, in other words, uncertainties of climatic trends may induce people's precautionary emission reduction but also may drive away money from abatement.

Suggested Citation

  • Lontzek, Thomas S. & Narita, Daiju, 2009. "The effect of uncertainty on decision making about climate change mitigation: a numerical approach of stochastic control," Kiel Working Papers 1539, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:1539
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    References listed on IDEAS

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    More about this item

    Keywords

    Climate change and uncertainties; stochastic control; climate policy;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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