Optimal Climate Policy Under the Possibility of a Catastrophe

Fondazione Eni Enrico Mattei Working Paper No. 11.98

37 Pages Posted: 11 Sep 1998

See all articles by Jon Gjerde

Jon Gjerde

Norwegian Computing Center

Sverre Grepperud

University of Oslo - Center for Health Administration

Snorre Kverndokk

Ragnar Frisch Centre for Economic Research

Date Written: February 1998

Abstract

This paper concerns optimal emissions of greenhouse gases when catastrophic consequences are possible. A numerical model is presented which takes into account both continuous climate-feedback damages as well as the possibility of a catastrophic outcome. The uncertainty in the model concerns whether or not a future catastrophe will occur. However, the welfare losses imposed by such an outcome are assumed known to the decision-maker. An important result is that the possibility of a climate catastrophe is a major argument for greenhouse gas abatement even in absence of continuous damage. Special attention is given to analyses on the probability of a catastrophe and the pure rate of time preferences, and the implicit values of these parameters are calculated if the Rio stabilisation target is assumed to be optimal. Finally, the expected value of perfect information about the probability of the arrival of a catastrophe is estimated.

JEL Classification: D6, Q2

Suggested Citation

Gjerde, Jon and Grepperud, Sverre and Kverndokk, Snorre, Optimal Climate Policy Under the Possibility of a Catastrophe (February 1998). Fondazione Eni Enrico Mattei Working Paper No. 11.98. Available at SSRN: https://ssrn.com/abstract=122137 or http://dx.doi.org/10.2139/ssrn.122137

Jon Gjerde

Norwegian Computing Center ( email )

P. O. Box 114 Blindern
0314 Oslo
Norway
+ 47 22 85 26 85 (Phone)
+ 47 22 69 76 60 (Fax)

Sverre Grepperud

University of Oslo - Center for Health Administration ( email )

The National Hospital
0027 Oslo
Norway
+ 47 23 07 53 11 (Phone)
+ 47 23 07 53 10 (Fax)

Snorre Kverndokk (Contact Author)

Ragnar Frisch Centre for Economic Research ( email )

Gaustadalleen 21
N-0349 Oslo
Norway
+47 22958811 (Phone)
+47 22958825 (Fax)

HOME PAGE: http://www.frisch.uio.no/cv/snorrek_eng.html

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