Short-term decisions under long-term uncertainty

Tol, Richard S J (1998) Short-term decisions under long-term uncertainty. Energy Economics, 20 (5-6). pp. 557-569. ISSN 0140-9883

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The behaviour of future policy-makers substantially influences future greenhouse gas emissions. Uncertainty about the motives of future policy-makers may thus strongly influence the climate policy strategies of current policy-makers. Analytical and numerical analyses in this paper confirm this hypothesis. If current policy-makers want to constrain emissions accumulated over a prolonged period of time, and if future policy-makers tend, with a certain chance, to a less ambitious climate policy, then current policy-makers should intensify their efforts to reduce emissions and the cost of emission reduction. In this setting, if current policy-makers want to meet a cumulative emission contraint in expectation, then the preferred policy trajectory does not qualitatively deviate from one suggested by a standard cost-effective trajectory. If, however, the constraint is to be met with a certain probability, then the importance of early action is enhanced relative to that of postponed action. Costs substantially increase if current policy-makers want to set long-term goals without the full cooperation of future policy-makers.

Item Type: Article
Schools and Departments: School of Business, Management and Economics > Economics
Subjects: H Social Sciences > HB Economic theory. Demography
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Depositing User: Richard Tol
Date Deposited: 23 Apr 2012 09:19
Last Modified: 30 Nov 2012 17:12
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