| 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