Watch Your Step: Optimal Policy in a Tipping Climate
نویسنده
چکیده
We investigate the optimal policy response to the possibility of abrupt, irreversible shifts in system dynamics. The welfare cost of a tipping point emerges from the policymaker’s response to altered system dynamics. Our policymaker also learns about a threshold’s location by observing the system’s response in each period. Simulations with a recursive, numerical climate-economy model show that tipping possibilities raise the optimal carbon tax more strongly over time. The resulting policy paths ultimately lower optimal peak warming by up to 0.5◦C. Different types of post-tipping shifts in dynamics generate qualitatively different optimal pre-tipping policy paths. JEL: Q54, D90, H23
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