Browsing by Author "Basu, Arnab"
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Item Open Access The social cost of carbon when we wish for full-path robustness(INFORMS (Institute for Operations Research and the Management Sciences), 2023-04-24) Zhao, Yifan; Basu, Arnab; Lontzek, Thomas S.; Schmedders, KarlWe compute the social cost of carbon (SCC) when decision makers want robust estimates in the face of deep (or “Knightian”) uncertainty. We introduce the notion of full-path accumulated robust preferences from stochastic control theory to an integrated assessment model. Robust preferences are appropriate for analyzing climate-related problems because, given the large uncertainty in climate science, they enable decision makers to attain solutions that are robust to a wide range of climate change scenarios. We solve the resulting model, which includes uncertainty about climate change and the ensuing economic damage and show the existence of optimal solutions and time-consistent optimal deterministic Markov policies. Additionally, we also prove that the standard Hansen–Sargent recursive utility provides an upper bound of this full-path utility. In our baseline model specification, we find that the year 2020’s optimal SCC is US$162 per tCO2 with an average annual growth rate of 2.5%, setting the world on a 1.37◦C path, which requires full decarbonization by 2068. We introduce the notion of the SCC robustness premium, which we define as the additional SCC price tag for robustness. For a plausible range of preference parameters, the SCC robustness premium in 2020 is between US$1.41 and US$25.89 per tCO2 with US$2.20 per tCO2 in our baseline calibration. Over time, this premium grows significantly. The forecasts of our model facilitate managerial decision making during the world’s transition from a carbon- and emission-intensive economy to a regenerative economy. The high estimates for the SCC predict drastic rises in emission costs for high-emission industries.Item Open Access Zero-sum Markov games with impulse controls(Society for Industrial and Applied Mathematics, 2020) Basu, Arnab; Stettner, L.In this paper we consider a zero-sum Markov stopping game on a general state space with impulse strategies and infinite time horizon discounted payoff where the state dynamics is a weak Feller--Markov process. One of the key contributions is our analysis of this problem based on “shifted” strategies, thereby proving that the original game can be practically restricted to a sequence of Dynkin's stopping games without affecting the optimalty of the saddle-point equilibria and hence completely solving some open problems in the existing literature. Under two quite general (weak) assumptions, we show the existence of the value of the game and the form of saddle-point (optimal) equilibria in the set of shifted strategies. Moreover, our methodology is different from the previous techniques used in the existing literature and is based on purely probabilistic arguments. In the process, we establish an interesting property of the underlying Feller--Markov process and the impossibility of infinite number of impulses in finite time under saddle-point strategies which is crucial for the verification result of the corresponding Isaacs--Bellman equations.