Cheap Talk, Gullibility, and Welfare in an Environmental Taxation Game

We consider a simple dynamic model of environmental taxation that exhibits time inconsistency. There are two categories of firms, Believers, who take the tax announcements made by the Regulator to face value, and Non-Believers, who perfectly anticipate the Regulator's decisions, albeit at a cost. The proportion of Believers and Non- Believers changes over time depending on the relative profits of both groups. We show that the Regulator can use misleading tax announcements to steer the economy to an equilibrium that is Pareto superior to the solutions usually suggested in the literature. Depending upon the initial proportion of Believers, the Regulator may prefer a fast or a low speed of reaction of the firms to differences in Believers/Non-Believers profits.Environmental policy, Emissions taxes, Time inconsistency, Heterogeneous agents, Bounded rationality, Learning, Multiple equilibria, Stackelberg games

Robust Control and Persistence in the New Keynesian Economy

Since Keynes no economist would deny that expectations under uncer- tain conditions matter for the conduct of monetary policy, but still opin- ions about their formation are diverse. We build a hybrid New Keynesian Framework to analyze the influence of model uncertainty on optimal in- terest rates under di¤erent degrees of rational forward-looking behavior, using recently developed robust control techniques. Impulse response functions illustrate that uncertainty seems to be a rationale for more aggressive interest rate reactions, but also suggest that the degree of forward-looking behavior seems to be more important than an appro- priate fear about the misspecification of a given model. Furthermore, we argue that assuming to control inflation through expectations is a policy on the razor's edge, since robust expectations overestimate shock impacts. This questions the gains from commitment under uncertainty.Robust Control, Knightian Uncertainty, Monetary Policy, Forward-Looking Expectations, Model Uncertainty.

The Climate Change Learning Curve

The key element in the tension between those who believe climate change is an issue and those who do not is essentially the question of whether we are merely in a long period of shock-induced above average temperatures or if we have led to this increase in temperatures by anthropogenic carbon emissions. The model proposed in this paper allows for a model in which we weigh observations on temperature against the potential that these are generated by a combination of uncertain parameters; namely the coefficient of autoregression and the sensitivity of temperature change to atmospheric carbon levels. This paper shows that, contrary to predictions in the literature that we can resolve uncertainty very quickly, the time to learn may be on the order of thousands of years when uncertainty surrounds two parameters in the law of motion for temperature. When the learning model is embedded in an optimal policy growth model, policy decisions are found to be affected by the prior mean but not the variance. A new solution algorithm which relies on randomization and least squares approximation is applied to solve the value function in the model.Climate Change; Bayesian Learning; Environmental Regulation; Growth; Pollution; Dynamic Programming; Precautionary Principle.

The international stock pollutant control: a stochastic formulation with transfers

This paper provides a formulation of a stochastic dynamic game that arise in the real scenario of international environmental agreements on the transnational pollution control. More specifically, this agreements try to reduce the environmental damage caused by the stock pollutant that accumulates in the atmosphere, such as CO2. To improve the non-cooperative equilibrium among countries, we propose the criteria of the minimization of the expected discounted total cost with monetary transfers between the countries involved as an incentive to cooperation. Moreover, it considers the formulation of Stochastic Dynamic Games as Markov Decision Processes, using tools of Stochastic Optimal Control and Stochastic Dynamic Programming. The performance of the proposed schemes is illustrated by its application to such environmental problem.Environmental pollutant control, Markov decision processes, Stochastic dynamic programming, Stochastic dynamic games, Optimal abatement policies

INTEGRATED ASSESSMENT MODELLING

integrated assessment

Why Tax Energy? Towards a More Rational Energy Policy

The same fuels are taxed at widely different rates in different countries while different fuels are taxed at widely different rates within and across countries. Coal, oil and gas are all used to generate electricity, but are subject to very different tax or subsidy regimes. This paper considers what tax theory has to say about efficient energy tax design. The main factors for energy taxes are the optimal tariff argument, the need to correct externalities such as global warming, and second-best considerations for taxing transport fuels as road charges, but these are inadequate to explain current energy taxes. EU energy tax harmonisation and Kyoto suggest that the time is ripe to reform energy taxation

The Dynamics of Carbon and Energy Intensity in a Model of Endogenous Technical Change

In recent years, a large number of papers have explored different attempts to endogenise technical change in climate models. The obvious reason is that technical change is widely considered the main route to achieving a significant reduction in global GHG emissions. This recent literature has emphasized that four factors – two inputs and two outputs – should play a major role when modelling technical change in climate models. The two inputs are R&D investments and Learning by Doing, the two outputs are energy-saving and fuel switching. Indeed, R&D investments and Learning by Doing are the main drivers of a climate-friendly technical change that eventually affect both energy intensity and fuel-mix. In this paper, we present and discuss an extension of the FEEM-RICE model in which these four factors are explicitly accounted for. In our new specification of endogenous technical change, an index of technical progress depends on both Learning by Researching and Learning by Doing. This index enters the equations defining energy intensity (i.e. the amount of carbon energy required to produce one unit of output) and carbon intensity (i.e. the level of carbonization of primarily used fuels). This new specification is embodied in the RICE 99 integrated assessment climate model and then used to generate a business as usual scenario and to analyze the relationship between climate policy and technical change. Sensitivity analysis is performed on different key parameters of the energy module in order to obtain crucial insights into the relative importance of the main channels through which technological changes affects the impact of human activities on climate. In addition, the effectiveness of different possible ways of combining Learning by Researching and Learning by Doing is also investigated.Climate Policy, Environmental Modelling, Integrated Assessment, Technical Change

Scientific Research about Climate Change Mitigation in Transport : A critical review

Peer reviewedPostprin

Why Tax Energy? Towards a More Rational Energy Policy

The same fuels are taxed at widely different rates in different countries while different fuels are taxed at widely different rates within and across countries. Coal, oil and gas are all used to generate electricity, but are subject to very different tax or subsidy regimes. This paper considers what tax theory has to say about efficient energy tax design. The main factors for energy taxes are the optimal tariff argument, the need to correct externalities such as global warming, and second-best considerations for taxing transport fuels as road charges, but these are inadequate to explain current energy taxes. EU energy tax harmonisation and Kyoto suggest that the time is ripe to reform energy taxation.tax, energy, oil, optimal tariff, externalities, exhaustible resources, global warming, road charges