18 Pages Posted: 27 Jan 2012
Date Written: January 18, 2012
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.
Keywords: Climate change policy and uncertainty, discounting abrupt and irreversible climate change, tipping points, stochastic IAM
JEL Classification: C63, Q54, D81
Suggested Citation: Suggested Citation
Lontzek, Thomas S. and Cai, Yongyang and Judd, Kenneth L., Tipping Points in a Dynamic Stochastic IAM (January 18, 2012). RDCEP Working Paper No. 12-03. Available at SSRN: https://ssrn.com/abstract=1992660 or http://dx.doi.org/10.2139/ssrn.1992660