Christian P. Traeger

Ambiguous Tipping Points

Christian Traeger, together with Derek M. Lemoine, have analysed the policy implications of aversion to Knightian uncertainty (ambiguity) about the possibility of tipping points. The researchers demonstrate two channels through which uncertainty aversion affects optimal policy in the general setting. The first channel relates to the policy’s effect on the probability of tipping, and the second channel to its differential impact in the pre- and post-tipping regimes. They then extend a recursive dynamic model of climate policy and tipping points to include uncertainty aversion. Numerically, aversion to Knightian uncertainty in the face of an ambiguous tipping point increases the optimal tax on carbon dioxide emissions, but only by a small amount.

Mr Traeger’s main research fields are environmental economics; intertemporal welfare analysis and decision theory with a focus on climate change; representation and evaluation of uncertainty; and discounting and cost benefit analysis.

During his stay in Munich, Mr Traeger will work jointly with ifo researchers on developing dynamic stochastic models of investments and green energy transition in the face of climate change and uncertain beliefs governing future technological innovation and climate agreements.

Christian Traeger is an Associate Professor at the Department of Economics at the University of Oslo on leave from the Department of Agricultural & Resource Economics at the University of California Berkeley. He is a Research Director at the ifo Center for Energy, Climate and Exhaustible Resources. He holds an MA in Physics from SUNY Stony Brook and an MA and PhD in Economics from the University of Heidelberg.