Main Research Fields:
   
  • Environmental Economics
  • Intertemporal Welfare Analysis
  • Decision Theory
  • Focus:
       
  • Climate Change
  • Representation & Evaluation of Uncertainty
  • Discounting & Cost Benefit Analysis
  • Please see below for peer reviewed and other publications, and a book draft on dynamic methods.
     
    Current Working Papers
     
    1   Uncertainty Representation
    1.1 Capturing Intrinsic Risk Attitude
         Short: The paper introduces a new measure of risk aversion in a multidimensional world and carefully elaborates risk comparisons across individuals. (collapse) Full Abstract
    1.2 Once Upon a Time Preference - How Rationality and Risk Aversion Change the Rationale for Discounting
          Slides of earlier version: Intertemporal Risk Aversion, Stationarity and Discounting
         Short: A comprehensive risk attitude eliminates pure time preference from the discounted expected utility model. Rational agents give more weight to the future the more they know about the consequences of their current actions. (collapse) Full Abstract
    1.3 Subjective Risk, Confidence, and Ambiguity     (Slides)
         Short: How should we evaluate our uncertain future once we realize that there are different types of uncertainty? The classical von Neumann-Morgenstern then imply a rational and normatively justified form of ambiguity attitude neglected in the standard model. (collapse) Full Abstract
    1.4 Disentangling Risk Aversion from Intertemporal Substitutability and the Temporal Resolution of Uncertainty    (under revision)
         Short: I show how intertemporal risk aversion explains Kreps & Porteus's (1978) preference for early or late resolution of uncertainty. (collapse) Full Abstract
    2   Discounting
    2.1 Discounting and Confidence
         Short: Does ambiguity or a lack of confidence in our forecast increase or decrease the weight on future consumption? How should we discount the future when confidence in our forecasts falls in futurity? (collapse) Full Abstract
    2.2 Generalized Cost-Benefit-Analysis and Social Discounting with Intertemporally Dependent Preferences (Draft 2009). With Larry Karp.
         Short: We derive the social discount rate in the context of intertemporally dependent preferences. (collapse) Full Abstract
    3    Climate Policy Assessment
    3.1 Analytic Integrated Assessment and Uncertainty.       (Presentation)
         Short: The paper closes a gap between complex quantitative numeric integrated assessment models of climate change and highly stylized models built for analytic insight. The derived GAUVAL model is the first analytic integrated assessment model with a realisitic tracking of temperature change. I explore the optimal carbon tax and the welfare implications of uncertainty governing carbon and temperature dynamics. (collapse) Full Abstract
    3.2 Pricing Climate Risk. With Svenn Jensen.
         Short: We discuss the policy consequences of uncertainty about the feedback processes determining the temperature response to greenhouse gas emissions and quantify the impact of Bayesian uncertainty, temperature stochasticity, and anticipated learning on optimal mitigation policy. (collapse) Full Abstract
    3.3 Smart Cap. With Larry Karp.
         Short: We introduce a “smart” cap and trade system that eliminates the welfare costs of asymmetric information (“uncertainty”). The cap endogenously increases or decreases in response to technology or macroeconomic shocks based on observed trading prices. We explain why the static criterion for ranking taxes versus quantities based on the relative slopes of the marginal damage and abatement cost curves fails in the dynamic setting. (collapse) Full Abstract
    Peer Reviewed Publications:
    Lemoine, D. and C.P. Traeger (2016), Ambiguous Tipping Points. Jounral of Economic Behaviour & Organization 132B: 5-18.
         We analyze the policy implications of aversion to Knightian uncertainty (or ambiguity) about the possibility of tipping points. We identify the channels analytically and evaluate the policy impact in a stochastic integrated assessment model.
    Lemoine, D. and C.P. Traeger (2016), Economics of Tipping the Climate Dominoes, Nature Climate Change 6:514-20.
         We analyze optimal climate change mitigation and the cost of delaying policy in the presence of three interacting climate tipping points ("domino effect") with unknown thresholds in a stochastic integrated assessment model.
    Crost, B. and C.P. Traeger (2014), Optimal CO2 Mitigation under Damage Risk Valuation, Nature Climate Change 4: 631–636, Review in News & Views.
         Future economic damages from climate change are highly uncertain. Using a stochastic integrated assessment model based on DICE-2007 (see 4-Stated DICE), we show how this damage uncertainty affects the optimal carbon tax, emission path, and temperature trajectory. Whereas uncertainty over the damage coefficient reduces the carbon tax, uncertainty over the damage exponent increases the optimal carbon tax more significantly. We show that the optimal carbon tax approximately doubles when using the Epstein-Zin-Weil preferences which better calibrate the model to observed asset pricing premia.  Note: The article circulated originally under the title "Risk and Aversion in Assessing Climate Policy".
    Traeger, C. (2014), A 4-stated DICE: Quantitatively Addressing Uncertainty Effects in Climate Change, Environmental and Resource Economics 59: 1-37.
         The paper introduces a state reduced, recursive dynamic programming implementation of the wide-spread DICE integrated assessment model of climate change. By simplifying the climate system's representation, the model cuts DICE's state variables into half, moderating the curse of dimensionality in dynamic programming. In comparison to the AOGCMs emulated by MAGICC, the simplified climate system performs just as well as the climate module of the original DICE 2007 and DICE 2013 models. The paper also addresses numeric accuaracy and choice of basis functions. It introduces a numerically convenient normalization and solves the infinite time horizon problem at an arbitrary time step.
    Traeger, C.P. (2014), On Option Values in Environmental and Resource Economics, Resource and Energy Economics 37: 242-252.
         Global warming, alterations of ecosystems, and sunk investments imply irreversible changes with uncertain future costs and benefits. The Arrow-Fisher-Hanemann-Henry quasi-option value and the Dixit-Pindyck option value both measure how irreversibility and uncertainty change the value of preserving an ecosystem or postponing an investment. This paper derives the precise relation between the two option values and shows how either of them alters the common net present value decision rule.
    Jensen, S. and C.P. Traeger (2014), Optimal Climate Change Mitigation under Long-Term Growth Uncertainty: Stochastic Integrated Assessment and Analytic Findings, European Economic Review 69(C): 104-125.
         Economic growth over the coming centuries is a major determinant of today’s optimal greenhouse gas mitigation policy. At the same time, long-run economic growth is highly uncertain. This paper evaluates optimal mitigation policy under long-term growth uncertainty in a stochastic integrated assessment model of climate change. We explain the mechanisms driving optimal mitigation under deterministic growth and uncertain technological progress in the discounted expected utility model as well as in the more comprehensive Epstein-Zin-Weil framework.
    Traeger, C.P. (2014), Why Uncertainty Matters - Discounting under Intertemporal Risk Aversion and Ambiguity, Economic Theory 56(3): 627-664.
         In the standard economic model, uncertainty has a negligible effect on the valuation of future project payoffs because of an implicit assumption of risk neutrality. I show that this picture changes dramatically under comprehensive risk and uncertainty attitude (intertemporal risk aversion, ambiguity). The paper also shows the importance of considering the correlation between project payoffs (e.g. greenhouse gas mitigation) and economic baseline growth in these settings.
    Lemoine, D. and C.P. Traeger (2014), Watch Your Step: Optimal Policy in a Tipping Climate, American Economic Journal: Economic Policy 6(1): 1–31.
         In an integrated assessment of climate change, we explicitly capture two alternative tipping points in the climate system affecting climate sensitivity and the carbon cycle, respectively. We derive the optimal climate policy accounting for endogenous welfare consequences of tipping and anticipated Bayesian learning.
    Traeger, C.P. (2013), Discounting Under Uncertainty: Disentangling the Weitzman and the Gollier Effect , Journal of Environmental Economics and Management 66(3): 573–582.
         The Weitzman-Gollier puzzle: The seemingly same argument justifies falling and increasing discount rates in the face of uncertainty. The paper shows: These rates mean different things and are created by different channels through which risk affects evaluation. Both make long-term payoffs more attractive.
    Crost, B. and C.P. Traeger (2013), Optimal Climate Policy: Uncertainty versus Monte-Carlo, Economic Letters 120(3): 552–558..
         We show that both size and sign can differ between the optimal climate policy under undertainty and the approximate policies obtained from individually optimizing and averaging Monte-Carlo runs.
    Schneider, M., C. Traeger, and R. Winkler (2012), Trading off Generations: Equity, Discounting, and Climate Change, European Economic Review 56: 1621-1644.
        Climate change affects future generations. We develop a new continuous time overlapping generations (OLG) model with deterministic life-time, population growth, and technological progress. We analyze observational equivalences between the OLG and infinitely-lived agent economies. We employ the model to identify short-comings in the equity trade-off in Stern's normative approach to discounting, and to critically discuss implicit assumptions in Nordhaus positive, calibration-based approach to discounting.
    Traeger, C. (2011), Sustainability, Limited Substitutability and Non-constant Social Discount Rates, Journal of Environmental Economics and Management 62: 215–228.
         The paper explores limited substitutability in welfare between environmental and produced goods. Limited substitutability affects magnitude and term structure of optimal social discount rates. Translating the notions of weak and strong sustainability into the degree of substitutability, I show that a strong notion of sustainability results in lower weights given to long-run service and consumption streams than a weak notion of sustainability.
    Traeger, C. (2009), Recent Developments in the Intertemporal Modeling of Uncertainty, Annual Review of Resource Economics 1:261-285.
         Time and uncertainty constitute essential ingredients to many of the most challenging resource problems. This review discusses models and concepts that aim at disentangling time and risk attitude and discusses resource economic applications. If also briefly reviews a generalization of risk attitude to situations where uncertainty is not captured by unique probability measures.
      

    Book Draft:
    Karp, L. and C. Traeger (2013), Dynamic Methods in Environmental and Resource Economics.
         The book discusses discrete and continuous time dynamic methods in the context of environmental economic appications. In particular, we cover dynamic programming (discrete, continuous, stochastic, numeric), the Maximum principle, non-convex dynamic systems, learning, time inconsistency, and general risk and ambiguity attitude. The book aims at graduate students and researchers in the field.
      

    Other Publications:
    Karp, L. and C. Traeger (2013), Discounting, In: Shogren, J.F., (ed.) Encyclopedia of Energy, Natural Resource, and Environmental Economics, volume 2, pp. 286-292 Amsterdam: Elsevier.
         We introduce the basic theory of discounting, including a discussion of normative versus positive discounting, risk, uncertainty, and catastrophes, limited substitutability of environmental goods, hyperbolic discounting, and overlapping generations.
      
    PhD Thesis (Doktorarbeit):
    Theoretical aspects of long-term evaluation in environmental economics
         The dissertation addresses the evaluation of long-term trade-offs between economic activity and its environmental repercussions. It concentrates on social discount rates, i.e. the weight given to the long versus the short run, and the treatment of uncertainty. The results render contributions to the fields of environmental economics and decision theory. From an applied view, they directly affect sustainability and cost benefit analysis.
    The first part of my thesis is dedicated to the relation between the notions of strong and weak sustainability and the time behavior of social discount rates. The second part introduces a new concept of risk aversion, which captures the willingness to undergo preventive action. The concept also provides a way to define a simple risk measure in a mutli commodity setting. It relates aspect of standard risk aversion and intertemporal substitutability. The third part of the dissertation derives several generalized evaluation rules, based on axioms concerning the timing of uncertainty resolution, uncertainty attitude, stationarity and time consistency. In particular I give a simple axiomatization that forces the rate of pure time preference to zero. A decision maker who subscribes to these axioms only discounts for reasons of uncertainty, but not for reasons of impatience.
      
     
    Master Thesis (German):
    Freedom of choice and the structure of intertemporal decision-making
         The thesis investigates how freedom of choice can be integrated into economic welfare analysis. The first part examines existing static axiomatizations of freedom of choice and fleshes out their implicit normative assumptions and shortcomings. It concludes that a meaningful measure of freedom must necessarily account for individual valuation of choice alternatives and the similarity of alternatives.
    The second part of my thesis analyzes the temporal structure in confining and evaluating opportunity sets. It establishes a relation between evaluation of opportunity sets in terms of freedom and preference for flexibility. I explain how, in a dynamic framework with uncertainty about future preferences, the two criteria to be considered in static axiomatizations (preference valuation of alternatives and similarity judgement) merge.
    The last part of the thesis elaborates the consequences of these insights for the informational basis of a comprehensive welfare analysis.