Uncertainty in Integrated Assessment Models of Climate Change: Alternative Analytical Approaches

24 Pages Posted: 9 Feb 2011

See all articles by Alexander Golub

Alexander Golub

Environmental Defense

Daiju Narita

Hokkaido University; Kiel Institute for the World Economy

Matthias G.W. Schmidt

Potsdam Institute for Climate Impact Research

Date Written: February 7, 2011

Abstract

Uncertainty plays a key role in the economics of climate change, and the discussions surrounding its implications for climate policy are far from settled. We give an overview of the literature on uncertainty in integrated assessment models of climate change and identify some future research needs. In the paper, we pay particular attention to three different and complementary approaches that model uncertainty in association with integrated assessment models: the discrete uncertainty modeling, the most common way to incorporate uncertainty in complex climate-economy models: the real options analysis, a simplified way to identify and value flexibility: the continuous-time stochastic dynamic programming, which is computationally most challenging but necessary if persistent stochasticity is considered.

Keywords: Uncertainty, Learning, Economics of Climate Change, Integrated Assessment Models, Real Options

JEL Classification: D81, Q54, C61

Suggested Citation

Golub, Alexander and Narita, Daiju and Schmidt, Matthias G.W., Uncertainty in Integrated Assessment Models of Climate Change: Alternative Analytical Approaches (February 7, 2011). FEEM Working Paper No. 2.2011. Available at SSRN: https://ssrn.com/abstract=1756685 or http://dx.doi.org/10.2139/ssrn.1756685

Alexander Golub (Contact Author)

Environmental Defense ( email )

New York, Nat'l Headquarters
257 Park Avenue South
New York, NY 10010
United States
202-387-3500 (Phone)

Daiju Narita

Hokkaido University ( email )

Kita-ku Kita 9 Nishi 7
Sapporo, Hokkaido, 060
Japan

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
Germany

Matthias G.W. Schmidt

Potsdam Institute for Climate Impact Research ( email )

Telegraphenberg
Potsdam, Brandenburg 14412
Germany

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