arXiv subjects

Felix Kübler

Publications and source records attributed to Felix Kübler.

7 recordsLinked to original sources

arXiv2026

A Lagrangian Approach to Optimal Randomization

We develop an efficient method for solving non-convex constrained optimization problems that are pervasive in economics. The optimal solution to these problems often involves randomization. We employ a Lagrangian framework and prove that the value of the saddle point characterizing the optimal random solution equals the value of the deterministic dual problem. Our algorithm solves this dual via subgradient descent and recovers the optimal random solution directly from deterministic optima computed along the iterations. For many non-convex economic problems, our method is orders of magnitude faster than linear programming, making previously intractable lottery problems feasible. As an application, we solve for optimal Mirrleesian income taxation with multi-dimensional types. We show that heterogeneity in productivity and Frisch elasticity can make randomization welfare-improving over the optimal deterministic schedule.

econ.TH↗

arXiv2025

Recursive contracts in non-convex environments

In this paper we examine non-convex dynamic optimization problems with forward looking constraints. We prove that the recursive multiplier formulation in \cite{marcet2019recursive} gives the optimal value if one assumes that the planner has access to a public randomization device and forward looking constraints only have to hold in expectations. Whether one formulates the functional equation as a sup-inf problem or as an inf-sup problem is essential for the timing of the optimal lottery and for determining which constraints have to hold in expectations. We discuss for which economic problems the use of lotteries can be considered a reasonable assumption. We provide a general method to recover the optimal policy from a solution of the functional equation. As an application of our results, we consider the Ramsey problem of optimal government policy and give examples where lotteries are essential for the optimal solution.

econ.TH↗

arXiv2025

Using Machine Learning to Compute Constrained Optimal Carbon Tax Rules

We develop a computational framework for deriving Pareto-improving and constrained optimal carbon tax rules in a stochastic overlapping generations (OLG) model with climate change. By integrating Deep Equilibrium Networks for fast policy evaluation and Gaussian process surrogate modeling with Bayesian active learning, the framework systematically locates optimal carbon tax schedules for heterogeneous agents exposed to climate risk. We apply our method to a 12-period OLG model in which exogenous shocks affect the carbon intensity of energy production, as well as the damage function. Constrained optimal carbon taxes consist of tax rates that are simple functions of observables and revenue-sharing rules that guarantee that the introduction of the taxes is Pareto improving. This reveals that a straightforward policy is highly effective: a Pareto-improving linear tax on cumulative emissions alone yields a 0.42% aggregate welfare gain in consumption-equivalent terms while adding further complexity to the tax provides only a marginal increase to 0.45%. The application demonstrates that the proposed approach produces scalable tools for macro-policy design in complex stochastic settings. Beyond climate economics, the framework offers a template for systematically analyzing welfare-improving policies in various heterogeneous-agent problems.

econ.GN↗

arXiv2025

Building Interpretable Climate Emulators for Economics

We introduce a framework for developing efficient and interpretable climate emulators (CEs) for economic models of climate change. The paper makes two main contributions. First, we propose a general framework for constructing carbon-cycle emulators (CCEs) for macroeconomic models. The framework is implemented as a generalized linear multi-reservoir (box) model that conserves key physical quantities and can be customized for specific applications. We consider three versions of the CCE, which we evaluate within a simple representative agent economic model: (i) a three-box setting comparable to DICE-2016, (ii) a four-box extension, and (iii) a four-box version that explicitly captures land-use change. While the three-box model reproduces benchmark results well and the fourth reservoir adds little, incorporating the impact of land-use change on the carbon storage capacity of the terrestrial biosphere substantially alters atmospheric carbon stocks, temperature trajectories, and the optimal mitigation path. Second, we investigate pattern-scaling techniques that transform global-mean temperature projections from CEs into spatially heterogeneous warming fields. We show how regional baseline climates, non-uniform warming, and the associated uncertainties propagate into economic damages.

econ.EM↗

arXiv2022

Climate uncertainty, financial frictions and constrained efficient carbon taxation

In this paper, I consider a simple heterogeneous agents model of a production economy with uncertain climate change and examine constrained efficient carbon taxation. If there are frictionless, complete financial markets, the simple model predicts a unique Pareto-optimal level of carbon taxes and abatement. In the presence of financial frictions, however, the optimal level of abatement cannot be defined without taking a stand on how abatement costs are distributed among individuals. I propose a simple linear cost-sharing scheme that has several desirable normative properties. I use calibrated examples of economies with incomplete financial markets and/or limited market participation to demonstrate that different schemes to share abatement costs can have large effects on optimal abatement levels and that the presence of financial frictions can increase optimal abatement by a factor of three relative to the case of frictionless financial market.

econ.GN↗

arXiv2022

The climate in climate economics

To analyze climate change mitigation strategies, economists rely on simplified climate models - climate emulators. We propose a generic and transparent calibration and evaluation strategy for these climate emulators that is based on Coupled Model Intercomparison Project, Phase 5 (CMIP5). We demonstrate that the appropriate choice of the free model parameters can be of key relevance for the predicted social cost of carbon. We propose to use four different test cases: two tests to separately calibrate and evaluate the carbon cycle and temperature response, a test to quantify the transient climate response, and a final test to evaluate the performance for scenarios close to those arising from economic models. We re-calibrate the climate part of the widely used DICE-2016: the multi-model mean as well as extreme, but still permissible climate sensitivities and carbon cycle responses. We demonstrate that the functional form of the climate emulator of the DICE-2016 model is fit for purpose, despite its simplicity, but its carbon cycle and temperature equations are miscalibrated. We examine the importance of the calibration for the social cost of carbon in the context of a partial equilibrium setting where interest rates are exogenous, as well as the simple general equilibrium setting from DICE-2016. We find that the model uncertainty from different consistent calibrations of the climate system can change the social cost of carbon by a factor of four if one assumes a quadratic damage function. When calibrated to the multi-model mean, our model predicts similar values for the social cost of carbon as the original DICE-2016, but with a strongly reduced sensitivity to the discount rate and about one degree less long-term warming. The social cost of carbon in DICE-2016 is oversensitive to the discount rate, leading to extreme comparative statics responses to changes in preferences.

econ.GN↗

arXiv2021

Exact inference from finite market data

We develop conditions under which individual choices and Walrasian equilibrium prices and allocations can be exactly inferred from finite market data. First, we consider market data that consist of individual demands as prices and incomes change. Second, we show that finitely many observations of individual endowments and associated Walrasian equilibrium prices, and only prices, suffice to identify individual demands and, as a consequence, equilibrium comparative statics.

econ.TH↗