Yu Sun - Uncertainty in Sustainability and Economic Decisions

ESPO Louvain-La-Neuve, Mons

29 septembre 2021


CORE c-035 - Voie du Roman Pays 34, 1348 Ottignies-Louvain-la-Neuve

Le Recteur de l'Université catholique de Louvain fait savoir que

Yu Sun

soutiendra publiquement sa dissertation pour l'obtention du titre de Docteur en sciences économiques et de gestion

« Uncertainty in Sustainability and Economic Decisions »

Lien Zoom


This dissertation analyses the uncertainties in economic decisions, and consists of six related chapters on sustainable growth and market competition.

The first two chapters discuss the long-term policy under the threat of catastrophes. We propose a model predictive control approach under catastrophic shocks. The modelling strategy combines optimal control techniques and Bayesian learning: after a catastrophe occurs, policy makers can improve their knowledge and adjust policies optimally. We prove the existence of the solutions. In specific, we focus on the events of earthquakes, when policy makers need tools to decide optimally on the economic trajectories that will maximize the society's welfare. Tools should be flexible and account for the consequences of earthquakes, incorporating the best estimate of their frequency and intensity. Some numerical examples illustrate the advantages of our modelling strategy along different dimensions. While Japan symbolizes the policy maker who has learned from earthquakes protecting the economy accordingly; Italy underlines the importance of prevention capital. China shows the hidden dangers of its extraordinary economic growth. Finally, the Chinese region of Yunan puts forward the roles of learning and of political independence.

In the third and fourth chapters, we analyse stochastic growth models with an externality - through health degradation - from production-induced pollutants. We propose multi-scale stochastic growth models, where the correlated uncertainties in both capital accumulation and health regeneration are analysed. We consider both moderate shocks and catastrophic shocks. Our models are analytically solvable with flexible environmental policy not only at global level, but also with the advantage of being disaggregated by country. Our central results are closed-form formulas for the optimal abatement policy (or, equivalently, the optimal carbon tax) and optimal growth rate. We demonstrate that the relationship between the abatement policy and growth rate is inverted-U shaped. Our numerical results suggest higher carbon tax than the well-known estimates in literature.

The fifth chapter proposes a analytical DSGE that allows the economy grows at a ‘healthy’ rate when taking into account of two production externalities: carbon dioxide and pollutant. In this regard, we generalize Golosov et al. 2014 model with extension to a health demand framework. In contrast to the vast majority of analytical DSGE, our economic growth rate is endogenous and optimal carbon tax formula is very simple to derive and apply. The impact of parameters on economic variables are discussed. In particular, our model indicates that adjustment of pollution tax results in proportional adjustment of Carbon tax at a constant rate.

The sixth chapter discusses the uncertainty and heterogeneity in a life-cycle market competition. Firms face uncertainty and the heterogeneity in the life-cycle of destination when they venture into foreign markets. We model firms with switching costs and market uncertainty in a two-period stochastic model. On one hand, switching costs motivate firms to lock consumers in period 1 by setting a price lower than the so-called conventional optimal price, which optimizes firms' current profit and ignore the future profitability (i.e. the ‘locked-in’ effect). On the other hand, in potential high-growth market, the future profitability depends mainly on the market expansion, rather than the locked-in consumers. Thus, firms are less interested in locking current consumers at the cost of lower current profit. This is defined as ‘market development effect’, which, in contrast to the ‘locked-in’ effect, motivates firms to set an equilibrium price close to the conventional optimal price. The weight of market potential in future profitability depends on the market foresight under uncertainty.

In empirical research, we analyse the strategy of family firms internationalization. We develop a two-period competition model with logistic market growth to assess the role of the life cycle of export markets on the decision to entry. Empirical evidence shows that family firms are more likely to enter markets with high growth potential in their early stages of development.

Membres du jury

Professeur Jean-Francois Maystadt (UCLouvain), Président du jury
Professeure Sandy Tubeuf (UCLouvain), Promotrice et Secrétaire du jury
Professeur Frédéric Gaspart (UCLouvain)
Professeur Simon Dietz (London School of Economics)
Professeur Guido Germano (University College London and LSE)

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