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Expected utility and catastrophic risk in a stochastic economy-climate model

Research output: Contribution to journalSpecial issue

Original languageEnglish
Number of pages20
JournalJournal of Econometrics
Early online date22 May 2019
DateAccepted/In press - 18 Dec 2018
DateE-pub ahead of print (current) - 22 May 2019


We analyze a stochastic dynamic finite-horizon economic model with climate change, in which the social planner faces uncertainty about future climate change and its economic damages. Our model (SDICE*) incorporates, possibly heavy-tailed, stochasticity in Nordhaus’ deterministic DICE model. We develop a regression-based numerical method for solving a general class of dynamic finite-horizon economy-climate models with potentially heavy-tailed uncertainty and general utility functions. We then apply this method to SDICE* and examine the effects of light- and heavy-tailed uncertainty. The results indicate that the effects can be substantial, depending on the nature and extent of the uncertainty and the social planner’s preferences.

    Structured keywords

  • ECON Econometrics

    Research areas

  • Economy-climate models, Economy-climate policy, Expected utility, Heavy tails, Uncertainty



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    Embargo ends: 22/05/21

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    Licence: CC BY-NC-ND


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