Tuesday 11
Environmental Economics
Meglena Jeleva
› 12:00 - 12:30 (30min)
› 406
Climate Policy: How to deal with ambiguity?
Johanna Etner  1@  , Meglena Jeleva  1, *@  , Natacha Raffin  1, 2@  
1 : EconomiX
University Paris Nanterre
2 : CREAM
Université de Rouen
* : Corresponding author

In this paper we study the impact of ambiguity and ambiguity attitudes on optimal adaptation and mitigation decisions when the future environmental quality is ambiguous and the decision maker's (DM) preferences are represented by the Max Min Expected Utility model. We show that ambiguity aversion plays a significant role in designing optimal environmental policy, that is different from risk aversion. More precisely, a more risk averse DM should soften the environmental policy whereas an increase in ambiguity aversion may display opposite results. We then focus on the induced effects of changes in ambiguity, captured by the arrival of additional information. We state that a change in the information structure may have a positive impact by triggering more efforts of both mitigation and adaptation when bad scenarios appear in the new information set. We also argue that an optimal policy should favor a mixed strategy, that is developing mitigation and adaptation while implementing a system of lump-sum refund towards agents. This result of complementary can be reinforced when many new different scenarios are to be considered.


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