Escolar Documentos
Profissional Documentos
Cultura Documentos
Yongyang Cai
(Hoover Institution)
Kenneth L. Judd
(Hoover Institution)
Thomas S. Lontzek
(University of Zurich)
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
Todays Presentation
I Fix DICE
I Introduce DSICE
I Apply DSICE to ask what is optimal policy when faced with potential
tipping points?
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
I DICE analysis
I 10 year time periods
I First, we compare the deterministic case to Nordhaus DICE model
I Strange finite-difference scheme for dynamics, incompatible with any
method in the numerical literature
I We build a 10-year and 1-year period length model, and find Nordhaus
approach is unreliable:
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
4 Capital Stock
x 10
12
N10
CJL10
10 CJL4
CJL2
CJL1
0
0 100 200 300 400 500 600
Year
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
Temparature of Atmosphere
4.5
N10
CJL10
4 CJL4
CJL2
CJL1
3.5
2.5
1.5
0.5
0 100 200 300 400 500 600
Year
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
Carbon in Atmosphere
1700
N10
CJL10
1600
CJL4
CJL2
1500 CJL1
1400
1300
1200
1100
1000
900
800
0 100 200 300 400 500 600
Year
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
0.4
0.3
0.2
0.1
0
0 50 100 150
Year
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
Carbon Tax
400
N10
350 CJL10
CJL4
CJL2
300 CJL1
250
200
150
100
50
0
0 50 100 150
Year
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
stochastic means: intrinsic random events within the specific model, not
uncertain parameters
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
I Yt f (kt , lt , t , t) = t At kt lt1
Jt
I t 1+1 T AT+ 2 (T
AT )2 , t 1
t
2
1,t t 2
t t
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
hazard rate
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
0.14
annual hazard rate
0.12
0.1
0.08
0.06
0.04
0.02
0
1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6
T from preindustrial level
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
I Once the tipping point is reached the shock to the damage function
persists
I ht = 0.01 Tt T2000
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
I intuition
I temperature is rising
I damage at time t is rising
I present value of damages is rising
I marginal benefit of emissions control is
rising
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
0.9 0.15
I red: 0 % and
0.8
0.1 100% quartiles
0.7
represent outer
0.6 0.05 envelopes of the
paths
0.5
0
0.4
I blue: 25% and
0.05 75% quartiles
0.3
0.2 0.1
I cyan: median
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
0.9 0.15
I is higher if the
tipping has not yet
0.8
0.1 occurred
0.7
I the drop in after
0.6 0.05
the tipping
0.5
0
represents the
effort to delay
0.4
0.05 tipping
0.3
I the anti-tipping
0.2 0.1
effort is constant
0.1 over time even
0.15
though the danger
50 100 150 200 50 100 150 200
Stage Stage and costs are rising
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
0.9 0.15
0.8
0.1 I constant
0.7
anti-tipping effort
0.05
0.6 in the face of a
0.5
rising tipping
0
hazard implies a
0.4
low effective
0.05
0.3 discount rate, as is
0.1
the case with
0.2
insurance
0.1
0.15 expenditures.
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
Summary of Application
I DSICE is the first example of a stochastic IAM
I DSICE models tipping points where current temperature can have a
permanent damage effect on output
I DICE model damage function does not incorporate this kind of
externality which is in the nature of tipping points.
I DICE implies steeply rising emission control rates
I DSICE implies a constant effort to delay a catastrophe despite the
rising prob. of crossing a tipping point and higher expected damage as
percentage of GDP
I Policies towards catastrophes resemble insurance expenditures which
always have a negative return
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting
Introduction DICE DSICE Uncertain Climate Change & Discounting Conclusion
Conclusion
Yongyang Cai (Hoover Institution) Kenneth L. Judd (Hoover Institution) Thomas S. Lontzek (University of Zurich)
DSICE - Dynamic Stochastic General Equilibrium Analysis of Climate Change Policies and Discounting