Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/142295
Authors: 
Markandya, Anil
De Cian, Enrica
Drouet, Laurent
Polanco-Martìnez, Josué M.
Bosello, Francesco
Year of Publication: 
2016
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 21.2016
Abstract: 
This paper proposes an operationally simple and easily generalizable methodology to incorporate climate change damage uncertainty into Integrated Assessment Models (IAMs). Uncertainty is transformed into a risk-premium, damage-correction, region-specific factor by extracting damage distribution means and variances from an ensemble of socio economic and climate change scenarios. This risk premium quantifies what society would be willing to pay to insure against the uncertainty of the damages, and it can be considered an add-up to the standard “average damage”. Our computations show the addition to be significant, but highly sensitive to the coefficient of relative risk aversion. Once the climate change damage function incorporates the risk premium into the model, results show a substantial increase in both mitigation and adaptation, reflecting a more conservative attitude by the social planner. Interestingly, adaptation is stimulated more than mitigation in the first half of the century, while the situation reverses afterwards. Over the century, the risk premium correction fosters more mitigation, which doubles, than adaptation, which rises by about 80%.
Subjects: 
Risk
Uncertainty
Climate
Adaptation
Mitigation
JEL: 
Q2
Q3
D8
D9
D62
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.