Robust Control in Global Warming Management: An Analytical Dynamic Integrated Assessment
Knightian uncertainty in climate sensitivity is analyzed in a two sec- toral integrated assessment model (IAM), based on an extension of DICE. A representative household that expresses ambiguity aversion uses robust control to identify robust climate policy feedback rules that work well over IPCC climate-sensitivity uncertainty range . Ambi- guity aversion, together with linear damage, increases carbon cost in a similar way as a low pure rate of time preference. Secondly, in combi- nation with non-linear damage it makes policy responsive to changes in climate data observations as it makes the household concerned about misreading sudden increases in carbon concentration rate and temper- ature as sources to global warming. Perfect ambiguity aversion results in an infinite expected shadow carbon cost and a zero carbon-intensive consumption path. Dynamic programming identifies an analytically tractable solution to the model.
climate change policy
integrated assessment models
Working Papers in Economics