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Fat-tailed risk about climate change and climate policy
journal contribution
posted on 2023-06-09, 00:27 authored by In Chang Hwang, Richard TolRichard Tol, Marjan W HofkesThis paper investigates the role of emissions control in welfare maximization under fat-tailed risk about climate change. We provide a classification of fat tails and discuss the effect of fat-tailed risk on climate policy. One of the main findings is that emissions control may prevent the “strong” tail-effect from arising, at least under some conditions such as bounded temperature increases, low risk aversion, low damage costs, and bounded utility function. More specifically, the fat-tailed risk with respect to a climate parameter does not necessarily lead to an unbounded carbon tax. In this case, the basic principle of cost-benefit analysis maintains its applicability.
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Publication status
- Published
Journal
Energy PolicyISSN
0301-4215Publisher
ElsevierExternal DOI
Volume
89Page range
25-35Department affiliated with
- Economics Publications
Full text available
- No
Peer reviewed?
- Yes
Legacy Posted Date
2016-03-07Usage metrics
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