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C limate P olicy , U ncertainty , and the R ole of T echnological I nnovation
Author(s) -
FISCHER CAROLYN,
STERNER THOMAS
Publication year - 2012
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/j.1467-9779.2011.01543.x
Subject(s) - economics , portfolio , marginal cost , investment (military) , marginal utility , marginal abatement cost , function (biology) , induced innovation , climate change , microeconomics , technological change , natural resource economics , financial economics , ecology , greenhouse gas , macroeconomics , evolutionary biology , politics , political science , law , biology
We study how uncertainty about climate change severity affects the relative benefits of early abatement and a portfolio of research and development (R&D) in lowering future abatement costs. Optimal early abatement depends on the curvature of the marginal benefit and marginal abatement cost (MAC) functions and how the uncertain parameter affects marginal benefits. R&D in a particular technology depends on whether uncertainty increases early abatement; whether investment lowers marginal costs for that technology; whether R&D lowers the slope of that technology's MAC function; and the shape of that technology's MAC function. We illustrate, focusing on the role of backstop technologies.