31 results on '"Christian P. Traeger"'
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2. SolACE - Solar Geoengineering in an Analytic Climate Economy
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Felix Meier and Christian P. Traeger
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History ,Polymers and Plastics ,Business and International Management ,Industrial and Manufacturing Engineering - Published
- 2022
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3. Pricing Climate Risk
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Svenn Jensen and Christian P. Traeger
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- 2021
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4. ACE – Analytic Climate Economy
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Christian P. Traeger
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Consumption (economics) ,History ,education.field_of_study ,Carbon tax ,Polymers and Plastics ,Technological change ,Population ,Industrial and Manufacturing Engineering ,Weighting ,Economy ,Capital (economics) ,Economics ,Business and International Management ,Energy source ,education ,Parametric statistics - Abstract
The paper discusses optimal carbon taxation in an analytic quantitative integrated assessment model (IAM). The model links IAM components and parametric assumptions directly to their policy impacts. The paper discusses the distinct tax impact of carbon versus temperature dynamics and uses the see-through model to illustrate various aspects of IAM calibrations including the differentiation between consumption and investments goods. Novel to analytic IAMs are the explicit temperature dynamics, a general economy, energy sectors including capital, various degrees of substitutability across energy sources, an approximation of capital persistence, and objective functions that include CES preferences and population weighting. ACE opens the door to tractable forward-looking stochastic modeling and dynamic strategic interactions in complex IAMs, explored in accompanying work.
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- 2021
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5. Uncertainty in the Analytic Climate Economy
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Christian P. Traeger
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- 2021
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6. Smart Cap
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Larry S. Karp and Christian P. Traeger
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- 2021
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7. Ambiguous tipping points
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Derek Lemoine and Christian P. Traeger
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Organizational Behavior and Human Resource Management ,Economics and Econometrics ,Carbon tax ,Public economics ,media_common.quotation_subject ,05 social sciences ,Ambiguity aversion ,Foundation (evidence) ,Ambiguity ,Tipping point (climatology) ,Hazard ,Dynamic programming ,0502 economics and business ,Econometrics ,Economics ,Optimal tax ,050207 economics ,Climate risk management ,Communication channel ,050205 econometrics ,Knightian uncertainty ,media_common - Abstract
We analyze the policy implications of aversion to Knightian uncertainty (ambiguity) about the possibility of tipping points. We demonstrate two channels through which uncertainty aversion affects optimal policy in the general setting. The first channel relates to the policy's effect on the probability of tipping, and the second channel to its differential impact in the pre- and post-tipping regimes. We then extend a recursive dynamic model of climate policy and tipping points to include uncertainty aversion. Numerically, aversion to Knightian uncertainty in the face of an ambiguous tipping point increases the optimal tax on carbon dioxide emissions, but only by a small amount.
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- 2016
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8. Capturing Intrinsic Risk Attitude
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Christian P. Traeger
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Consumption (economics) ,Epstein–Zin preferences ,Econometrics ,Economics ,Capital asset pricing model ,Contrast (statistics) ,Elasticity of intertemporal substitution ,Representation (mathematics) ,Measure (mathematics) ,Preference (economics) - Abstract
The present paper introduces a novel idea of what constitutes risk attitude, how we can represent it, and how we can compare risk attitude across agents with differing tastes. In contrast to the Arrow--Pratt measure, it links directly to preferences on the multidimensional consumption space and is independent of the way in which we measure consumption. The paper derives a corresponding preference representation and applied insights governing Epstein-Zin preferences and asset pricing models. In particular, it suggests why the popular long-run risk model finds estimates of the elasticity of intertemporal substitution constrasting sharply with the rest of macroeconomics.
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- 2019
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9. Economics of tipping the climate dominoes
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Christian P. Traeger and Derek Lemoine
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010504 meteorology & atmospheric sciences ,Natural resource economics ,business.industry ,Political economy of climate change ,05 social sciences ,Climate system ,Global warming ,Environmental resource management ,Environmental Science (miscellaneous) ,Climate policy ,01 natural sciences ,Domino effect ,Climate change mitigation ,0502 economics and business ,Economics ,050207 economics ,business ,Social Sciences (miscellaneous) ,0105 earth and related environmental sciences - Abstract
Global warming could trigger irreversible regime shifts—‘tipping points’—in the climate system. This study analyses climate policy in the presence of a potential domino effect resulting from the interaction of such tipping points.
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- 2016
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10. Prices Versus Quantities Reassessed
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Larry S. Karp and Christian P. Traeger
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History ,Polymers and Plastics ,Business and International Management ,Industrial and Manufacturing Engineering - Published
- 2018
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11. ACE – Analytic Climate Economy (with Temperature and Uncertainty)
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Christian P. Traeger
- Subjects
Carbon tax ,Economy ,Stochastic volatility ,Risk aversion ,Economics ,Climate change ,Climate sensitivity ,Optimal tax ,Time preference ,Curse of dimensionality - Abstract
This paper is a revised version of: https://ssrn.com/abstract=2667972. The Analytic Climate Economy (ACE) closes a gap between analytic climate change assessments and quantitative numeric integrated assessment models (IAMs) used in policy advising. Its closed-form solution links IAM components and parametric assumptions directly to their policy impacts. Its analytic nature overcomes Bellman's curse of dimensionality for a wide range of stochastic processes. ACE shows that uncertainty flips the main drivers of the carbon tax. Uncertainty also makes IAMs even more sensitive to the discount rate and its composition. Under a recent survey's median estimate for pure time preference, uncertainty almost triples the optimal tax.
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- 2018
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12. Recalculating the Social Cost of Carbon
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Valentina Bosetti, Simon Dietz, Massimo Tavoni, Rick van der Ploeg, Johannes Emmerling, Christoph Hambel, Holger Kraft, Christian P. Traeger, Svenn Jensen, and Soheil Shayegh
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business.industry ,Policy making ,media_common.quotation_subject ,Social cost ,Climate change ,Environmental economics ,Damages ,Economics ,Relevance (information retrieval) ,business ,Marginal abatement cost ,Risk management ,Skepticism ,media_common - Abstract
Over the last few decades, integrated assessment models (IAM) have provided insight into the relationship between climate change, economy, and climate policies. The limitations of these models in capturing uncertainty in climate parameters, heterogeneity in damages and policies, have given rise to skepticism about the relevance of these models for policy making. IAM community needs to respond to these critics and to the new challenges posed by developments in the policy arena. New climate targets emerging from the Paris Agreement and the uncertainty about the signatories’ commitment to Nationally Determined Contributions (NDCs) are prime examples of challenges that need to be addressed in the next generation of IAMs. Given these challenges, calculating the social cost of carbon requires a new framework. This can be done by computing marginal abatement cost in cost-effective settings which provides different results than those calculated using constrained cost-benefit analysis. Here we focus on the areas where IAMs can be deployed to asses uncertainty and risk management, learning, and regional heterogeneity in climate change impacts.
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- 2018
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13. On option values in environmental and resource economics
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Christian P. Traeger
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Microeconomics ,Economics and Econometrics ,Intrinsic value (finance) ,Cost–benefit analysis ,Global warming ,Economics ,Asian option ,Decision rule ,Net present value ,Option value - Abstract
Global warming, alterations of ecosystems, and sunk investments all imply irreversible changes with uncertain future costs and benefits. The Arrow–Fisher–Hanemann–Henry quasi-option value and the Dixit–Pindyck option value both measure how irreversibility and uncertainty change the value of preserving an ecosystem or postponing an investment. This paper shows the precise relation between the two option values and explains that the quasi-option value captures the value of learning conditional on preservation, whereas the Dixit–Pindyck option value captures the net value of preservation under learning. We show how either of the two concepts alters the common net present value decision rule. We illustrate similarities, differences, and the decision rules in two instructive examples.
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- 2014
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14. Optimal climate change mitigation under long-term growth uncertainty: Stochastic integrated assessment and analytic findings
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Svenn Jensen and Christian P. Traeger
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Microeconomics ,Economics and Econometrics ,Climate change mitigation ,Carbon tax ,Risk aversion ,Technological change ,Greenhouse gas ,Economics ,Capital asset pricing model ,Production (economics) ,Finance ,Expected utility hypothesis - 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.
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- 2014
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15. Watch Your Step: Optimal Policy in a Tipping Climate
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Christian P. Traeger and Derek Lemoine
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Carbon tax ,Welfare economics ,jel:Q54 ,Economics ,Econometrics ,jel:D78 ,jel:Q58 ,Tipping point (climatology) ,General Economics, Econometrics and Finance ,jel:H23 ,System dynamics - Abstract
We investigate the optimal policy response to the possibility of abrupt, irreversible shifts in system dynamics. The welfare cost of a tipping point emerges from the policymaker's response to altered system dynamics. Our policymaker also learns about a threshold's location by observing the system's response in each period. Simulations with a recursive, numerical climate-economy model show that tipping possibilities raise the optimal carbon tax more strongly over time. The resulting policy paths ultimately lower optimal peak warming by up to 0.5°C. Different types of posttipping shifts in dynamics generate qualitatively different optimal pretipping policy paths. (JEL D78, H23, Q54, Q58)
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- 2014
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16. Discounting under uncertainty: Disentangling the Weitzman and the Gollier effect
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Christian P. Traeger
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Economics and Econometrics ,Discounting ,Cost–benefit analysis ,Financial economics ,Argument ,Econometrics ,Economics ,Management, Monitoring, Policy and Law ,Term (time) - Abstract
The uncertainty of future economic development affects the term structure of discount rates and, thus, the intertemporal weights that are to be used in cost benefit analysis. The U.K. and France have recently adopted a falling term structure to incorporate uncertainty and the U.S. is considering a similar step. A series of publications discusses the following concern: A seemingly analogous argument used to justify falling discount rates can also justify increasing discount rates. We show that increasing and decreasing discount rates mean different things, can coexist, are created by different channels through which risk affects evaluation, and have the same qualitative effect of making long-term payoffs more attractive.
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- 2013
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17. Optimal climate policy: Uncertainty versus Monte Carlo
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Benjamin Crost and Christian P. Traeger
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Economics and Econometrics ,Risk aversion ,Computer science ,Monte Carlo method ,Econometrics ,Dice ,Sensitivity analysis ,Set (psychology) ,Advice (complexity) ,Finance ,Stochastic programming ,Uncertainty analysis - Abstract
The integrated assessment literature frequently replicates uncertainty by averaging Monte Carlo runs of deterministic models. This Monte Carlo analysis is, in essence, an averaged sensitivity analyses. The approach resolves all uncertainty before the first time period, drawing parameters from a distribution before initiating a given model run. This paper analyzes how closely a Monte Carlo based derivation of optimal policies is to the truly optimal policy, in which the decision maker acknowledges the full set of possible future trajectories in every period. Our analysis uses a stochastic dynamic programming version of the widespread integrated assessment model DICE, and focuses on damage uncertainty. We show that the optimizing Monte Carlo approach is not only off in magnitude, but can even lead to a wrong sign of the uncertainty effect. Moreover, it can lead to contradictory policy advice, suggesting a more stringent climate policy in terms of the abatement rate and a less stringent one in terms of the expenditure on abatement.
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- 2013
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18. Recent Developments in the Intertemporal Modeling of Uncertainty
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Christian P. Traeger
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jel:D81 ,Economics and Econometrics ,Risk aversion ,media_common.quotation_subject ,ambiguity, intertemporal, recursive utility, risk aversion, social discount rate, time preference ,Ambiguity ,Preference ,Microeconomics ,Time consistency ,Multiple time dimensions ,jel:Q30 ,Economics ,Social discount rate ,Time preference ,Expected utility hypothesis ,media_common - Abstract
Time and uncertainty constitute essential ingredients to many of the most challenging resource problems. With respect to the time dimension, agents are generally assumed to have a pure time preference as well as a preference for smoothing consumption over time. With respect to risk, agents are generally assumed to be Arrow-Pratt risk averse. The discounted expected utility model assumes that aversion to risk and aversion to intertemporal fluctuations coincide. This review discusses models and concepts that aim at disentangling time and risk attitude and briefly sketches a generalization of risk attitude to situations where uncertainty is not captured by unique probability measures. This paper reviews resource economic applications and relates the concepts to the debate on the social discount rate.
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- 2009
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19. Closed-Form Integrated Assessment and Uncertainty
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Christian P. Traeger
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050208 finance ,13. Climate action ,0502 economics and business ,05 social sciences ,050207 economics - Published
- 2015
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20. Analytic Integrated Assessment and Uncertainty
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Christian P. Traeger
- Subjects
Carbon tax ,Risk aversion ,media_common.quotation_subject ,Welfare economics ,Econometrics ,Economics ,Deadweight loss ,Climate change ,Sensitivity analysis ,Time preference ,Welfare ,Uncertainty analysis ,media_common - Abstract
This paper is a revised version of: http://ssrn.com/abstract=2643293.The paper derives the optimal carbon tax in closed-form from an integrated assessment of climate change. The formula shows how carbon, temperature, and economic dynamics quantify the optimal mitigation effort. The model's descriptive power is comparable to numeric models used in policy advising. Uncertainty surrounding climate change remains large, and the paper derives closed-form expressions of welfare loss from shocks and epistemological uncertainty. These expressions interact (intrinsic) risk attitude, distributional moments, and the climatic shadow values, and they exhibit different sensitivities to time preference. Welfare gains from reducing uncertainty about temperature feedbacks are much higher than the gains from better measurements of carbon flows.
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- 2015
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21. A 4-stated DICE: quantitatively addressing uncertainty effects in climate change
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Christian P. Traeger
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Economics and Econometrics ,Mathematical optimization ,DICE ,Computer science ,jel:C63 ,interemporal substitution ,Dice ,Time horizon ,Basis function ,Management, Monitoring, Policy and Law ,Social and Behavioral Sciences ,jel:Q00 ,Bellman equation ,basis ,Economics ,integrated assessment ,intertemporal substitution ,uncertainty ,Social and Behavioral Sciences, climate change, uncertainty, intergrated assessment, DICE, dynamic programming, risk aversion, interemporal substitution, recursive utility ,Uncertainty analysis ,dynamic programming ,DICE model ,jel:D90 ,recursive utility ,risk aversion ,MAGICC ,intergrated assessment ,Dynamic programming ,climate change ,jel:Q54 ,Law, Social and Behavioral Sciences, climate change, uncertainty, integrated assessment, DICE, dynamic programming, risk aversion, intertemporal substitution, MAGICC, basis, recursive utility ,climate change, uncertainty, integrated assessment, intergrated assessment, DICE, dynamic programming, risk aversion, interemporal substitution , recursive utility ,Mathematical economics ,Law ,Curse of dimensionality - Abstract
We introduce a version of the DICE-2007 model designed for uncertainty analysis. DICE is a wide-spread deterministic integrated assessment model of climate change. Climate change, long-term economic development, and their interactions are highly uncertain. The quantitative analysis of optimal mitigation policy under uncertainty requires a recursive dynamic programming implementation of integrated assessment models. Such implementations are subject to the curse of dimensionality. Every increase in the dimension of the state space is paid for by a combination of (exponentially) increasing processor time, lower quality of the value or policy function approximations, and reductions of the uncertainty domain. The paper promotes a state reduced, recursive dynamic programming implementation of the DICE-2007 model. We achieve the reduction by simplifying the carbon cycle and the temperature delay equations. We compare our model's performance and that of the DICE model to the scientific AOGCM models emulated by MAGICC 6.0 and find that our simplified model performs equally well as the original DICE model. Our implementation solves the infinite planning horizon problem in an arbitrary time step. The paper is the first to carefully analyze the quality of the value function approximation using two different types of basis functions and systematically varying the dimension of the basis. We present the closed form, continuous time approximation to the exogenous (discretely and inductively defined) processes in DICE, and we present a numerically more efficient re-normalized Bellman equation that, in addition, can disentangle risk attitude from the propensity to smooth consumption over time.
- Published
- 2013
22. Trading-off generations: Equity, discounting, and climate change
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Christian P. Traeger, Maik T. Schneider, and Ralph Winkler
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Discounting ,Economics and Econometrics ,Equity (economics) ,Overlapping Generations ,Financial economics ,Climate change ,Overlapping generations model ,Social preferences ,Intergenerational Equity ,Microeconomics ,Intergenerational equity ,Economics ,SDG 13 - Climate Action ,Normative ,Time preference ,Finance - Abstract
The prevailing literature discusses intergenerational trade-offs in climate change predominantly in terms of the Ramsey equation relying on the infinitely lived agent model. We discuss these trade-offs in a continuous time OLG framework and relate our results to the infinitely lived agent setting. We identify three shortcomings of the latter: first, underlying normative assumptions about social preferences cannot be deduced unambiguously. Second, the distribution among generations living at the same time cannot be captured. Third, the optimal solution may not be implementable in overlapping generations market economies.
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- 2012
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23. Tipping Points and Ambiguity in the Economics of Climate Change
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Christian P. Traeger and Derek Lemoine
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Dynamic programming ,Carbon tax ,Public economics ,media_common.quotation_subject ,Econometrics ,Economics ,Climate change ,Regime shift ,Ambiguity ,Tipping point (climatology) ,Welfare ,media_common ,System dynamics - Abstract
We model optimal policy when the probability of a tipping point, the welfare change due to a tipping point, and knowledge about a tipping point's trigger all depend on the policy path. Analytic results demonstrate how optimal policy depends on the ability to affect both the probability of a tipping point and also welfare in a post-threshold world. Simulations with a numerical climate-economy model show that possible tipping points in the climate system increase the optimal near-term carbon tax by up to 45% in base case speciffcations. The resulting policy paths lower peak warming by up to 0.5 C compared to a model without possible tipping points. Different types of tipping points have qualitatively different effects on policy, demonstrating the importance of explicitly modeling tipping points' effects on system dynamics. Aversion to ambiguity in the threshold's distribution can amplify or dampen the effect of tipping points on optimal policy, but in our numerical model, ambiguity aversionincreases the optimal carbon tax.
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- 2012
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24. Once Upon a Time Preference - How Rationality and Risk Aversion Change the Rationale for Discounting
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Christian P. Traeger
- Published
- 2012
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25. Risk and Aversion in Assessing Climate Policy
- Author
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Christian P. Traeger and Benjamin Crost
- Subjects
Actuarial science ,Carbon tax ,Risk aversion ,Decision theory ,Risk premium ,Equity premium puzzle ,Economics ,Econometrics ,Climate change ,Economic model ,Expected utility hypothesis - Abstract
The precise consequences of climate change remain uncertain. We incorporate damage uncertainty into a joint model of climate and the economy, an integrated assessment model. First, both the science and the integrated assessment community analyze uncertainty by means of sensitivity analysis and Monte-Carlo simulations. These methods have serious limitations in deriving a carbon tax or cap under uncertainty: they do not incorporate the interaction between stochastic climate impacts and economic policy. We derive the optimal climate policies accounting for the full interaction between uncertain damage realizations, optimal policy response, and climatic feedback. Second, state of the art integrated assessment relies on the standard economic model. Modern decision theory and its applications to finance show that this discounted expected utility model is incapable of simultaneously capturing adequate risk premia and a reasonable discount rate, leading to the equity premium and the risk-free rate puzzles. We follow the finance literature in disentangling risk aversion from the propensity to smooth consumption over time, which gives rise to a model reflecting correctly the risk-free discount rate and the risk premia. We find that optimal mitigation efforts are twice as high in the comprehensive risk model as compared to the entangled standard model.
- Published
- 2012
- Full Text
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26. Discounting and Confidence
- Author
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Christian P. Traeger
- Subjects
Discounting ,Actuarial science ,Risk aversion ,media_common.quotation_subject ,Econometrics ,Probabilistic logic ,Economics ,Prudence ,Ambiguity ,Measure (mathematics) ,Expected utility hypothesis ,media_common ,Term (time) - Abstract
The paper analyzes the discount rate under uncertainty. The analy- sis complements the probabilistic characterization of uncertainty by a measure of confidence. Special cases of the model comprise discounting under smooth am- biguity aversion as well as discounting under a disentanglement of risk aversion from aversion to intertemporal substitution. The paper characterizes the gen- eral class of preferences for which uncertainty implies a reduction of the discount rate. It also characterizes how the more comprehensive description of uncertainty changes the discount rate with respect to the standard model. The paper relates different results in the literature by switching between different risk measures. It presents a parametric extension of the Ramsey discounting formula that takes into account confidence into future growth estimates and a measure of aversion to the lack of confidence. If confidence decreases in the futurity of the growth forecast, the discount rates have a falling term structure even in the case of an iid growth process.
- Published
- 2011
- Full Text
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27. Trading Off Generations: Infinitely-Lived Agent Versus OLG
- Author
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Christian P. Traeger, Ralph Winkler, and Maik T. Schneider
- Subjects
Discounting ,business.industry ,Welfare economics ,Intergenerational equity ,Economics ,Distribution (economics) ,Normative ,Overlapping generations model ,Time preference ,business ,Mathematical economics ,Social preferences - Abstract
The prevailing literature discusses intergenerational trade-offs in climate change predominantly in terms of the Ramsey equation relying on the infinitely lived agent model. We discuss these trade-offs in a continuous time OLG framework and relate our results to the infinitely lived agent setting. We identify three shortcomings of the latter: First, underlying normative assumptions about social preferences cannot be deduced unambiguously. Second, the distribution among generations living at the same time cannot be captured. Third, the optimal solution may not be implementable in overlapping generations market economies.
- Published
- 2010
- Full Text
- View/download PDF
28. Subjective Risk, Confidence, and Ambiguity
- Author
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Christian P. Traeger
- Subjects
Risk analysis ,Risk aversion ,Financial economics ,media_common.quotation_subject ,Risk and Uncertainty ,recursive utility ,Probabilistic logic ,expected utility ,Ambiguity aversion ,intertemporal substitutability ,Ambiguity ,subjective beliefs ,Multiple-criteria decision analysis ,climate change ,intertemporal risk aversion ,Economics ,ambiguity ,Special case ,uncertainty ,Mathematical economics ,Expected utility hypothesis ,media_common - Abstract
The paper incorporates qualitative differences of probabilistic beliefs into a rational (or normatively motivated) decision framework. Probabilistic beliefs can range from objective probabilities to pure guesstimates. The decision maker in the present model takes into account his confidence in beliefs when evaluating general uncertain situations. From an axiomatic point of view, the approach stays as close as possible to the widespread von Neumann-Morgenstern framework. The resulting representation uses only basic tools from risk analysis, but employs them recursively. The paper extends the concept of smooth ambiguity aversion to a more general notion of aversion to the subjectivity of belief. As a special case, the framework permits a threefold disentanglement of intertemporal substitutability, Arrow-Pratt risk aversion, and smooth ambiguity aversion. A decision maker’s preferences can nest a variety of widespread decision criteria, which are selected according to his confidence in the uncertainty assessment of a particular setting.
- Published
- 2010
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29. Why uncertainty matters - discounting under intertemporal risk aversion and ambiguity
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Christian P. Traeger
- Subjects
Risk neutrality ,Economics and Econometrics ,Discounting ,Cost–benefit analysis ,discounting ,media_common.quotation_subject ,ambiguity, climate change, cost benefit analysis, discounting, intertemporal substitutability, risk aversion, uncertainty ,risk aversion ,Life Sciences ,Ambiguity aversion ,intertemporal substitutability ,Ambiguity ,ambiguity, climate change, cost benefit analysis, discounting, intertemporal substitutability, risk aversion, uncertainty, Social and Behavioral Sciences, Life Sciences ,Social and Behavioral Sciences ,Microeconomics ,climate change ,cost benefit analysis ,ambiguity ,Economics ,Economic model ,uncertainty ,Merge (version control) ,media_common ,Public finance - Abstract
Uncertainty has an almost negligible impact on project value in the economicstandard model. I show that a comprehensive evaluation of uncertainty and uncertainty attitude changes this picture fundamentally. The analysis relies on the discount rate, which is the crucial determinant in balancing immediate costs against future benefits and the single most important determinant of optimal mitigation policies in the integrated assessment of climate change. The paper examines two shortcomings in the recent debate and the current models addressing climate change assessment. First, removing an implicit assumption of (intertemporal) risk neutrality reduces the growth effect in social discounting and significantly amplifies the importance of risk and correlation. Second, debate and models largely overlook the difference in attitude with respect to risk and with respect to non-risk uncertainty. The paper derives the resulting changes of the risk-free and the stochastic social discount rate and points out the importance of even thin tailed uncertainty for climate change evaluation. It discusses combinations ofuncertainty and correlation that reduce the social discount rate to pure preference. In a theoretical contribution, the paper extends the smooth ambiguity model by providing a threefold disentanglement between, risk aversion, ambiguity aversion, and the propensityto smooth consumption over time.
- Published
- 2008
30. Sustainability, Limited Substitutability and Non-Constant Social Discount Rates
- Author
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Christian P. Traeger
- Subjects
Economics and Econometrics ,social discount factor ,social discount rate ,propagator of marginal utility ,weak sustainability ,Management, Monitoring, Policy and Law ,Social and Behavioral Sciences ,strong sustainability ,Microeconomics ,hyperbolic ,project evaluation ,Economics ,Social discount rate ,Consumption (economics) ,time preference ,Life Sciences ,non-constant discounting ,environmental discount rate ,limited substitutability ,Weak and strong sustainability ,Sustainability ,benefit-cost analysis, sustainable development, welfare economics ,numeraire dependence ,environmental discount rate, hyperbolic, limited substitutability, non-constant discounting, numeraire dependence, project evaluation, propagator of marginal utility, social discount factor, social discount rate, strong sustainability, time preference, weak sustainability, Social and Behavioral Sciences, Life Sciences ,Time preference ,Constant (mathematics) - Abstract
The paper explores the consequences of limited substitutability in welfare between environmental and produced goods for long-term evaluation. I show how the magnitude and time development of optimal social discount rates depend on the substitutability between the different classes of goods. The notions of weak and strong sustainability are translated into the degree of substitutability. I show that a strong notion of sustainability results in lower weights given to long-run service and consumption streams compared to a weak notion of sustainability.
- Published
- 2008
31. The Social Discount Rate Under Intertemporal Risk Aversion and Ambiguity
- Author
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Christian P. Traeger
- Published
- 2008
- Full Text
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