Adaptation, Mitigation and Risk-Taking in Climate Policy

23 Pages Posted: 1 Feb 2011

See all articles by Heike Auerswald

Heike Auerswald

Dresden University of Technology - Faculty of Economics and Business Management

Kai A. Konrad

Max Planck Institute for Tax Law and Public Finance; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); IZA Institute of Labor Economics

Marcel P. Thum

Dresden University of Technology - Faculty of Economics and Business Management; CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute; Institute for Corruption Studies

Date Written: January 31, 2011

Abstract

The future consequences of climate change are highly uncertain. Today, the exact size of possible future damages are widely unknown. Governments try to cope with these risks by investing in mitigation and adaptation measures. Mitigation aims at a reduction of greenhouse gas emissions whereas adaptation reduces the follow-up costs of climate change. In contrast to the existing literature, we explicitly model the decision of risk-averse governments on mitigation and adaptation policies. Furthermore we also consider the interaction of the two strategies. Mitigation efforts of a single country trigger crowding out as other countries will reduce their mitigation efforts. We show that, under fairly mild conditions, a unilateral increase in mitigation efforts of a single country can even increase global emissions. In contrast, a unilateral commitment to large adaptation efforts benefits the single country and may reduce the global risk from climate change at the expense of other countries.

Keywords: climate change, adaptation, mitigation, risk-taking

JEL Classification: Q540, Q580

Suggested Citation

Auerswald, Heike and Konrad, Kai A. and Thum, Marcel, Adaptation, Mitigation and Risk-Taking in Climate Policy (January 31, 2011). CESifo Working Paper Series No. 3320, Available at SSRN: https://ssrn.com/abstract=1752133

Heike Auerswald

Dresden University of Technology - Faculty of Economics and Business Management ( email )

Mommsenstrasse 13
Dresden, D-01062
Germany

HOME PAGE: http://www.tu-dresden.de/wwvwlfw

Kai A. Konrad

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

HOME PAGE: http://www.tax.mpg.de/en/pub/home.cfm

Centre for Economic Policy Research (CEPR)

90-98 Goswell Road
London, EC1V 7RR
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, 81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, 53072
Germany

Marcel Thum (Contact Author)

Dresden University of Technology - Faculty of Economics and Business Management ( email )

Mommsenstrasse 13
Dresden, D-01062
Germany

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Institute for Corruption Studies

Stevenson Hall 425
Normal, IL 61790-4200
United States

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