Table 2: Sensitivity analysis: How each...

Table 2:

Sensitivity analysis: How each parameter affects the gap between the policymaker’s and the firm’s optimal levels of abatement investment.

Parameter	Parameter values	Policymaker’s preferred investment level based on DDR schedule beginning in year 0	Firm’s optimal abatement level under an annually revised, time-inconsistent DDR schedule	% Difference
Baseline model^*		3,176.63	2,839.55	−10.61
Growth in annual climate damage	0.0045 0.0055	2,999.25 3,367.69	2,682.69 3,008.47	−10.55 −10.66
Initial climate damage	2.2 1.8	3,494.30 2,858.97	3,123.51 2,555.60	−10.61 −10.61
µ	0.02^** 0.044	4,045.89 2,695.00	3831.27 2,461.83	−5.30 −8.65
σ	0.027 0.033	2,740.05 3,603.43	2509.81 3,169.57	−8.40 −2.04

Parameter	Parameter values	Policymaker’s preferred investment level based on DDR schedule beginning in year 0	Firm’s optimal abatement level under an annually revised, time-inconsistent DDR schedule	% Difference
Baseline model^*		3,176.63	2,839.55	−10.61
Growth in annual climate damage	0.00450.0055	2,999.253,367.69	2,682.693,008.47	−10.55−10.66
Initial climate damage	2.21.8	3,494.302,858.97	3,123.512,555.60	−10.61−10.61
µ	0.02^**0.044	4,045.892,695.00	3831.272,461.83	−5.30−8.65
σ	0.0270.033	2,740.053,603.43	2509.813,169.57	−8.40−2.04

Growth in annual climate damage = 0.005, initial climate damage = 2, µ = 0.04, σ = 0.03.

= 0.01 to keep the discount rate from falling below zero.

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