To mitigate or to adapt: How to deal with optimism, pessimism and strategic ambiguity?

Document type :

Article dans une revue scientifique: Article original

DOI :

10.1016/j.jebo.2023.04.011

Title :

To mitigate or to adapt: How to deal with optimism, pessimism and strategic ambiguity?

Author(s) :

Eddai, Nahed [Auteur]
Lille économie management - UMR 9221 [LEM]
Guerdjikova, Ani [Auteur]
Laboratoire d'Economie Appliquée de Grenoble [GAEL]

Journal title :

Journal of Economic Behavior and Organization

Pages :

1-30

Publisher :

Elsevier

Publication date :

2023-07

ISSN :

0167-2681

English keyword(s) :

Climate policy
Ambiguity
Heterogeneity
Choquet expected utility

HAL domain(s) :

Sciences de l'Homme et Société/Economies et finances

English abstract : [en]

We analyze the effect of strategic ambiguity and heterogeneous attitudes towards such ambiguity on optimal mitigation and adaptation. Pessimistic players tend to invest more in mitigation, while optimists favor adaptation. ...
Show more >We analyze the effect of strategic ambiguity and heterogeneous attitudes towards such ambiguity on optimal mitigation and adaptation. Pessimistic players tend to invest more in mitigation, while optimists favor adaptation. When adaptation is more expensive than mitigation, three types of equilibria can obtain depending on the level and distribution of ambiguity aversion: ( i ) a mitigation equilibrium, (ii) an adaptation equilibrium and (iii) a mixed equilibrium with both adaptation and mitigation. The interaction between ambigu-ity attitudes and wealth distribution plays a crucial role for the aggregate environmental policy: a wealth transfer from pessimistic to optimistic agents increases total mitigation. A similar result applies to the choice of an optimal mitigation subsidy, which is shown to increase in optimism, but decrease following a transfer of income towards the more optimistic players. Finally, we show that under strategic ambiguity, the introduction of a non-binding standard can impact agents' beliefs about their opponents' behavior and as a result lower total equilibrium mitigation. Our results highlight the necessity to consider attitudes towards strategic ambiguity in the design of economic policies targeting climate change. They might also shed some light on the slow rate of convergence of environmental policies across countries.Show less >

Language :

Anglais

Peer reviewed article :

Oui

Audience :

Internationale

Popular science :

Non

ANR Project :

Collections :

Lille Économie Management (LEM) - UMR 9221

Source :

Harvested from HAL