Alternative Types of Ambiguity and their Effects on Climate Change Regulation

This paper focuses on different types of ambiguity that affect climate change regulation. In particular, we analyze the effects of the interaction among three types of agents, namely, the decision-maker (DM), the climate change experts, and the society, on the probabilistic properties of green-house gas (GHG) emissions and the formation of environmental policy. These effects are analyzed under two types of ambiguity: "deferential ambiguity" and "preferential ambiguity". Deferential ambiguity refers to the uncertainty that the experts face concerning whose forecast (scenario) the DM will defer to. Preferential ambiguity stems from the potential inability of the DM to correctly discern the society's preferences about the desired change of GHG emissions. This paper shows that the existence of deferential and preferential ambiguities have significant effects on GHG emissions regulation.