Weitzman Meets Nordhaus : Expected Utility and Catastrophic Risk in a Stochastic Economy-Climate Model

Ikefuji, Masako; Laeven, Roger J. A.; Magnus, Jan R.; Muris, Chris

Weitzman Meets Nordhaus : Expected Utility and Catastrophic Risk in a Stochastic Economy-Climate Model

Ikefuji, Masako; Laeven, Roger J. A.; Magnus, Jan R. et al.

Institute of Social and Economic Research Discussion Papers, 2011, 825

Number of Access:508（2025-08-16 03:18 Counts）

Identifier to cite or link to this item: https://hdl.handle.net/11094/13841

Item Information

Output File Export EndNote Basic Export Mendeley

Title	Weitzman Meets Nordhaus : Expected Utility and Catastrophic Risk in a Stochastic Economy-Climate Model
Creator	NRID 1000060452380 1000060452380 researchmap permalink 7000013503 7000013503 Scopus Author ID 22934213000 22934213000 CreatorName Ikefuji, Masako
	CreatorName Laeven, Roger J. A.
	CreatorName Magnus, Jan R.
	CreatorName Muris, Chris
Subject	Economy-climate models
	Catastrophe
	Expected utility
	Heavy tails
	Power utility
Abstract	We specify a stochastic economy-climate model, adapting Nord-haus' deterministic economy-climate model by allowing for Weitzman-typestochasticity. We show that, under expected power utility, the model isfragile to heavy-tailed distributional assumptions and we derive necessaryand sufficient conditions on the utility function to avoid fragility. We solveour stochastic economy-climate model for two cases with compatible pairs ofutility functions and heavy-tailed distributional assumptions. We further de-velop and implement a procedure to learn the input parameters of our modeland show that the model thus specied produces robust optimal policies.The numerical results indicate that higher levels of uncertainty lead to lessabatement and consumption, and to more investment.
Publisher	The Institute of Social and Economic Research, Osaka University
Source Title	Institute of Social and Economic Research Discussion Papers
Volume (Issue)	825
Date of Issued	2011-12
Language	English
Handle URL	https://hdl.handle.net/11094/13841
Relation.references	URI https://www.iser.osaka-u.ac.jp/static/resources/docs/dp/2011/DP0825.pdf
Access Rights	metadata only access
Category	ディスカッション／ワーキング・ペーパー DP/WP
Category	Institute of Social and Economic Research Discussion Papers

Resource Type	technical report
Local Type	DP/WP
DCMI Type	Text
DCTERMS.bibliographicCitation	Institute of Social and Economic Research Discussion Papers. 2011, 825
DC.title	Weitzman Meets Nordhaus : Expected Utility and Catastrophic Risk in a Stochastic Economy-Climate Model
DC.creator	Ikefuji, Masako
	Laeven, Roger J. A.
	Magnus, Jan R.
	Muris, Chris
DC.publisher	The Institute of Social and Economic Research, Osaka University
DC.language' scheme='DCTERMS.RFC1766	English
DC.type' scheme='DCTERMS.DCMIType	Text
DCTERMS.issued' scheme='DCTERMS.W3CDTF	2011-12
DC.relation' scheme='DCTERMS.URI	https://www.iser.osaka-u.ac.jp/static/resources/docs/dp/2011/DP0825.pdf
DC.subject	Economy-climate models
	Catastrophe
	Expected utility
	Heavy tails
	Power utility
DCTERMS.abstract	We specify a stochastic economy-climate model, adapting Nord-haus' deterministic economy-climate model by allowing for Weitzman-typestochasticity. We show that, under expected power utility, the model isfragile to heavy-tailed distributional assumptions and we derive necessaryand sufficient conditions on the utility function to avoid fragility. We solveour stochastic economy-climate model for two cases with compatible pairs ofutility functions and heavy-tailed distributional assumptions. We further de-velop and implement a procedure to learn the input parameters of our modeland show that the model thus specied produces robust optimal policies.The numerical results indicate that higher levels of uncertainty lead to lessabatement and consumption, and to more investment.
DC.format	13841
citation_title	Weitzman Meets Nordhaus : Expected Utility and Catastrophic Risk in a Stochastic Economy-Climate Model
citation_author	Ikefuji, Masako
	Laeven, Roger J. A.
	Magnus, Jan R.
	Muris, Chris
citation_publisher	The Institute of Social and Economic Research, Osaka University
citation_language	English
citation_date	2011-12
citation_journal_title	Institute of Social and Economic Research Discussion Papers
citation_volume	825
citation_public_url	https://hdl.handle.net/11094/13841
citation_abstract_html_url	https://www.iser.osaka-u.ac.jp/static/resources/docs/dp/2011/DP0825.pdf

Weitzman Meets Nordhaus : Expected Utility and Catastrophic Risk in a Stochastic Economy-Climate Model

Item Information

Show details