As part of the Brown Bag Lunch series, the International Economics Department at the Graduate Institute is pleased to invite you to a public talk given by Laura Nowzohour, PhD student in International Economics. She will present her research work entitled
Policy Uncertainty and the Transition to Clean Technologies

Abstract: This paper seeks to assess the effects of uncertainty around the optimal environmental policy in a model of directed technical change based on Acemoglu et al. (2012)*. I first replicate the existing model which includes deriving the optimal carbon tax and research subsidy in order to address the environmental and the intertemporal research externality. Second, I introduce a friction in the scientist’s choice - a convex adjustment cost to its ability to switch sectors in any given period – with two objectives in mind : first, I can generate more realistic model dynamics as opposed to the « bang-bang » nature of the original model; second, by making the scientist’s problem forward-looking as opposed to period-by-period, I can generate a potential role for future uncertainty. The ultimate objective of the paper is to assess the quantitative effects of uncertainty around the optimal policy. Thus, as a third step, I give the scientist a concave (as opposed to linear) utility function, thereby making it risk averse. The latter is required for uncertainty in the sense of risk (i.e. beyond the change in mean) to matter for the scientist’s investment decision.

* Acemoglu, D., Aghion, P., Bursztyn, L., and Hemous, D. (2012). The Environment and Directed Technical Change. The American Economic Review, 102(1):131–166.