Abstract
This paper focuses on different types of ambiguity that affect climate change regulation. In particular, we analyze the effects of the interaction among three types of agents, namely, the decision-maker (DM), the climate change experts, and the society, on the probabilistic properties of green-house gas (GHG) emissions and the formation of environmental policy. These effects are analyzed under two types of ambiguity: "deferential ambiguity" and "preferential ambiguity". Deferential ambiguity refers to the uncertainty that the experts face concerning whose forecast (scenario) the DM will defer to. Preferential ambiguity stems from the potential inability of the DM to correctly discern the society's preferences about the desired change of GHG emissions. This paper shows that the existence of deferential and preferential ambiguities have significant effects on GHG emissions regulation.
Highlights
Introduction and Policy MotivationIt is often claimed that decision making on climate change is characterized by ambiguity
We focus on the ...rst type of uncertainty and argue that when attempting to resolve it, one has to account for the reaction of decision maker (DM)
If the two experts disagree on the DM’s degree of radicalness and in particular the ...rst expert assumes that the DM’s actions will be more radical, while the other believes that she is less radical, the unconditional variance will be larger when the probability of deference to the ...rst expert is small enough (see Appendix (14)). If both experts assume that DM will be less radical than she is, the unconditional variance of the change in green-house gas (GHG) emissions in the def case of two experts, will always be larger than in the benchmark case. This is the ...rst paper, to the best of our knowledge, that introduces ambiguity that derives from the interaction among the di¤erent agents relevant in climate change regulation
Summary
It is often claimed that decision making on climate change is characterized by ambiguity (or deep uncertainty). ". In our model, the climate change experts provide DM with di¤erent GHG emissions forecasts (scenarios) while DM has to decide on which of these forecasts she will base her policy decision. A second source of ambiguity (present even in the case of a single expert) stems from the potential inability of DM to correctly discern the society’s preferences about the desired change of GHG emissions at each point in time. Hereafter, this type of ambiguity will be referred to as Preferential Ambiguity. Our work focuses on: ...rst, characterizing the di¤erent types of ambiguity faced by the DM and the experts, second examining their interaction and third analyzing the e¤ects of this interaction on the probabilistic properties of GHG emissions
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