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Free keywords:
climate change, Knightian uncertainty, κ ambiguity, real options
Abstract:
This paper examines the impact of Knightian uncertainty upon optimalclimate
policy through the prism of a continuous-time real optionmodelling
framework. We analytically determine optimal intertemporalclimate
policies under ambiguity. Additionally, numerical simulationsare
provided to illustrate the properties of the model. The resultsindicate
that increasing Knightian uncertainty accelerates climatepolicy,
i.e. policymakers become more reluctant to postpone the timingof
climate policies into the future.