Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/32809
Authors: 
Narita, Daiju
Year of Publication: 
2010
Series/Report no.: 
Kiel working paper 1624
Abstract: 
It is believed that the primary economic solution to climate change is an introduction of a carbon pricing system anchored to the social cost of carbon, either as a form of tax or tradable permits. Potentially significant externalities accompanying the introduction of emission-reducing technologies, however, imply that the standard argument does not capture some important aspects for the designing of climate policy such as expectation-driven technology adoption. By using a simple model, we show some possible cases where carbon emission reduction progresses in a self-fulfilling prophecy by firms expecting others' future actions. In such circumstances, the carbon pricing system does not have much influence on determining the final outcome of economy-wide emission reduction. This highlights the danger of overemphasis on finding the 'right' carbon price in policy making and the role of climate policy as expectation management.
Subjects: 
Climate policy
technology choice
expectations
multiple equilibria
JEL: 
Q54
O33
Document Type: 
Working Paper

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