Watch Your Step: Optimal Policy in a Tipping Climate

Watch Your Step: Optimal Policy in a Tipping Climate. Lemoine, D. & Traeger, C. American Economic Journal: Economic Policy, 6(1):137–166, February, 2014.

Paper doi abstract bibtex

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.

@article{lemoine_watch_2014,
	title = {Watch {Your} {Step}: {Optimal} {Policy} in a {Tipping} {Climate}},
	volume = {6},
	issn = {1945-7731, 1945-774X},
	shorttitle = {Watch {Your} {Step}},
	url = {http://pubs.aeaweb.org/doi/10.1257/pol.6.1.137},
	doi = {10.1257/pol.6.1.137},
	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.},
	language = {en},
	number = {1},
	urldate = {2017-07-24},
	journal = {American Economic Journal: Economic Policy},
	author = {Lemoine, Derek and Traeger, Christian},
	month = feb,
	year = {2014},
	keywords = {GA, Untagged},
	pages = {137--166},
}

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