Chapter

The Cost of Ambiguity and Robustness in International Pollution Control

Anastasios Xepapadeas

in Climate Change and Common Sense

Published in print February 2012 | ISBN: 9780199692873
Published online May 2012 | e-ISBN: 9780191738371 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199692873.003.0006
The Cost of Ambiguity and Robustness in International Pollution Control

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Robust policy rules and precaution might be called for, under conditions of scientific uncertainty, when a policy maker is concerned about possible misspecification of the natural system that is used to model pollution dynamics. Precaution, however, could be costly. The present chapter develops a conceptual framework for designing robust policy rules and estimating the cost of being precautious in the context of an international pollution control problem. Cooperative and non-cooperative robust policy rules are determined and the cost, in terms of value loss, of being robust relative to conventional policy rules is estimated.

Keywords: ambiguity; robustness; precaution; differential games; open loop; feedback Nash equilibrium

Chapter.  8524 words.  Illustrated.

Subjects: Economic Development and Growth

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