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Tipping Points in a Dynamic Stochastic IAMThomas S. LontzekUniversity of Zurich; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP) Yongyang CaiStanford University - The Hoover Institution on War, Revolution and Peace; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP); National Bureau of Economic Research (NBER) Kenneth L. JuddStanford University - The Hoover Institution on War, Revolution and Peace; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP); National Bureau of Economic Research (NBER) January 18, 2012 RDCEP Working Paper No. 12-03 Abstract: We use a dynamic stochastic general equilibrium model of integrated climate and economy (DSICE) to account for abrupt and irreversible climate change. We model a climate shock in the form of a stochastic tipping point. We investigate the impact of the tipping point externality on optimal mitigation policy. We conclude that the optimal mitigation policy depends on the dynamic pattern of the impact. In the case of abrupt and irreversible climate change with a permanent impact, the optimal policy implies a constant anti-tipping effort to prevent the catastrophe, calling for immediate limitations on emissions.
Number of Pages in PDF File: 18 Keywords: Climate change policy and uncertainty, discounting abrupt and irreversible climate change, tipping points, stochastic IAM JEL Classification: C63, Q54, D81 working papers seriesDate posted: January 27, 2012Suggested CitationContact Information
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