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Climate Change and Common SenseEssays in Honour of Tom Schelling$
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Robert W. Hahn and Alistair Ulph

Print publication date: 2012

Print ISBN-13: 9780199692873

Published to Oxford Scholarship Online: May 2012

DOI: 10.1093/acprof:oso/9780199692873.001.0001

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The Cost of Ambiguity and Robustness in International Pollution Control

The Cost of Ambiguity and Robustness in International Pollution Control

(p.75) 6 The Cost of Ambiguity and Robustness in International Pollution Control
Climate Change and Common Sense

Anastasios Xepapadeas

Oxford University Press

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

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