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Abstract
Under risk of abrupt climate change, the occurrence hazard is added to the social discount rate. As a result, the social discount
rate (i) increases and (ii) turns endogenous to the global warming policy. The second effect bears profound policy implications that are
magnified by economic growth. In particular, we find that greenhouse gases (GHG) emission should be terminated at a finite time so that the ensuing occurrence risk will vanish in the long run. Due to the public bad nature of the catastrophic risk, the second effect is ignored in a competitive allocation and unregulated economic growth will give rise to excessive emissions. In fact, the GHG emission paths under the optimal and competitive growth regimes lie at the extreme ends of the range of feasible emissions. We derive the Pigouvian hazard tax that
implements the optimal growth regime.