Emanuele Campiglio will be discussing Believe me when I say green! Heterogeneous expectations and climate policy uncertainty


We develop a dynamic model where firms take investment decisions depending on their expectations of future carbon price paths, themselves a function of the perceived credibility of the policy-maker mitigation plans. We show that: (i) a ‘high-carbon trap’ might arise if the policy-maker is excessively concerned about transition costs, especially if stated climate goals are ambitious; (ii) even in presence of a fully committed policy-maker, belief dynamics significantly affect the speed and shape of the low-carbon transition.

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