Dark Clouds or Silver Linings? Knightian Uncertainty and Climate Change
نویسندگان
چکیده
This paper examines the impact of Knightian uncertainty upon optimal climate policy through the prism of a continuous-time real option modelling framework. We analytically determine optimal intertemporal climate policies under ambiguous assessments of climate damages. Additionally, numerical simulations are provided to illustrate the properties of the model. The results indicate that increasing Knightian uncertainty accelerates climate policy, i.e. an ambiguity-averse policy maker become more reluctant to postpone the timing of climate policies into the future. However, we find that the size of this effect is rather small, which indicates that Knightian uncertainty is no "carte blanche" for extreme policy activism.
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