Dark Clouds or Silver Linings? Knightian Uncertainty and Climate Change

Michael Funke, Yu-Fu Chen and Nicole Glanemann

Quantitative Macroeconomics Working Papers from Hamburg University, Department of Economics

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 ambiguity. Additionally, numerical simulations are provided to illustrate the properties of the model. The results indicate that increasing Knightian uncertainty accelerates climate policy, i.e. policymakers become more reluctant to postpone the timing of climate policies into the future.

Keywords: climate change; Knightian uncertainty; ê ambiguity; real options (search for similar items in EconPapers)
JEL-codes: C61 D81 Q54 (search for similar items in EconPapers)
Date: 2011-07
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Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Dark Clouds or Silver Linings? Knightian Uncertainty and Climate Change (2011)
Working Paper: Dark Clouds or Silver Linings? Knightian Uncertainty and Climate Change (2011)
Working Paper: Dark Clouds or Silver Linings? Knightian Uncertainty and Climate Change (2011)
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