Pricing Uncertainty Induced by Climate Change
52 Pages Posted: 22 Aug 2019 Last revised: 14 Nov 2019
Date Written: November 13, 2019
Geophysicists examine and document the repercussions for the earth's climate induced by alternative emission scenarios and model specifications. Using simplified approximations, they produce tractable characterizations of the associated uncertainty. Meanwhile, economists write highly stylized damage functions to speculate about how climate change alters macroeconomic and growth opportunities. How can we assess both climate and emissions impacts, as well as uncertainty in the broadest sense, in social decision-making? We provide a framework for answering this question by embracing recent decision theory and tools from asset pricing, and we apply this structure with its interacting components in a revealing quantitative illustration.
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