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/lp/american-economic-association/watch-your-step-optimal-policy-in-a-tipping-climate-xMUZn5Bw0A
- Publisher
- American Economic Association
- Copyright
- Copyright © 2014 by the American Economic Association
- Subject
- Articles
- ISSN
- 1945-7731
- eISSN
- 1945-774x
- DOI
- 10.1257/pol.6.1.137
- Publisher site
- See Article on Publisher Site
Abstract
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 )
Journal
American Economic Journal: Economic Policy – American Economic Association
Published: Feb 1, 2014