Groupe d’études et de recherche en analyse des décisions


Limited Predictability of a THC Shutdown: Implications for Economic Policy


We modify an existing model of climate and economy to address the effect of uncer- tain, threshold events on the choice of optimal emissions control policy. We augment an existing model to include a non-linear response to climate system perturbations mod- eled on the potential shutdown of the Atlantic thermohaline circulation (THC). Using a model which features decision making under uncertainty by a social planner, we are able to quantify the cost of parameter uncertainty and judge the value of perfect infor- mation. We find that uncertainty over climate sensitivity to carbon emissions and over the value of the threshold has minimal costs given standard economic growth model parameters, which is counterintuitive given assumptions and conclusions in previous papers. Additionally, we find that important changes occur as a result of removing the assumption that non-linearities in damages occur in tandem with non-linearities in the climate system.

, 33 pages