EURO 2024 Copenhagen
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3265. Climate policy in a heterogenous world

Invited abstract in session TA-33: Heterogeneity in optimal control problems, stream Optimal Control Theory and Applications.

Tuesday, 8:30-10:00
Room: 42 (building: 303A)

Authors (first author is the speaker)

1. Giorgio Fabbri
CNRS Grenoble
2. Raouf Boucekkine
Rennes School of Business
3. Fausto Gozzi
Dipartimento di Economia e Finanza, Luiss University - Roma - Italy
4. Cristiano Ricci
Università di Pisa
5. Ted Loch-Temzelides
Rice University

Abstract

We introduce a dynamic game framework that does not rely on linearity as-
sumptions, while at the same time retaining tractability. As an illustration, we employ this framework to derive new insights on climate-related policy. We build a game-theoretic version of the dynamic integrated assessment model in Golosov et al. (2014). Our framework allows us to characterize emissions, consumption, and welfare across different equilibrium outcomes by computing the Nash and Stackelberg equilibria of a dynamic game capturing aspects of climate negotiations between the “global north” and “global south.” We use these to draw various comparisons between such outcomes and the efficient frontier. We find that both the global north and the global south over-consume/pollute in the non-cooperative equilibria and the global south underinvests in abatement. Stackelberg leadership by the global north in climate negotiations reduces global emissions and increases welfare over the Nash outcome, although the emissions remain far from the optimum.
Asymmetric vulnerability to climate change leads to a reversal in emissions, where the less vulnerable country emits more. We employ robust control to study how deep uncertainty affects outcomes.

Keywords

Status: accepted

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