Five Essays in the Economics of Climate Engineering, Research, and Regulation under Uncertainty

by Daniel Heyen

Institution: Universität Heidelberg
Department: The Faculty of Economics and Social Studies
Degree: PhD
Year: 2015
Record ID: 1110441
Full text PDF: http://www.ub.uni-heidelberg.de/archiv/18775


This thesis revolves around two of the most prominent strategies for tackling environmental problems. One is technological innovation with a focus on Climate Engineering technologies, mostly Solar Radiation Management (SRM) (Crutzen 2006; Keith 2013). The other is regulatory decision-making under fundamental uncertainty. Research and learning are intimately linked with both strategies, thus playing a connecting role in this dissertation. Methodologically, this thesis takes a theoretical approach, combining modern environmental economics with recent developments in decision theory and the literature on regulation. The first part of this thesis advances the current state of knowledge on technological solutions to environmental problems, taking Climate Engineering technologies as an illustration. The focus here is on the implications of specific strategic conflicts on the incentives to develop SRM technologies with costly R&D. The two dimensions of strategic conflict analyzed are the intergenerational conflict among generations when the generation providing the technology for a future generation anticipates that the way the technology will be used is different from its own preferred profile (“The Intergenerational Transfer of Solar Radiation Management Capabilities and Atmospheric Carbon Stocks”) and the intragenerational conflict among countries that have different preferences for the amount of global cooling (“Free rider vs. free driver – R&D incentives for environmental technologies”). The findings can be summarized as follows: First, the intergenerational strategic conflict that results if a current generation cannot stipulate the specific use of SRM technologies can give rise to a rich set of outcomes in terms of R&D decision and abatement efforts, including the ban of SRM, abatement collapse, but also the development of SRM accompanied by an increase in abatement efforts in order to nudge future generation towards a specific use of the technology. Second, the anticipation of strategic conflicts between countries can give rise to suboptimal low or suboptimal high investments in R&D, depending on whether the expected strategic conflict in the deployment profile of the Climate Engineering technology is a standard free-rider or a free-driver conflict; the latter occurs if one country chooses high levels of SRM and thus imposes an externality on other countries (Weitzman 2012). The second part of this thesis focuses on regulatory decisions under uncertainty for which the standard expected utility framework is inadequate. This may happen if the matter of regulation involves complex processes or novel substances and thus requires a description of knowledge that goes beyond a unique probability distribution formulation. A well-known alternative are multiple prior models (static and dynamic axiomatizations were provided by Gilboa and Schmeidler 1989 and Epstein and Schneider 2003/2007, respectively). The third and fourth paper in this thesis overcome shortcomings in the existing decision-theoretic literature on…