How Should Climate Change Uncertainty Impact Social Valuation and Policy?

60 Pages Posted: 3 Nov 2023

See all articles by Michael Barnett

Michael Barnett

Arizona State University (ASU) - Finance Department

William A. Brock

University of Wisconsin, Madison - Department of Economics; University of Missouri at Columbia - Department of Economics

Lars Peter Hansen

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Hong Zhang

Argonne National Laboratory

Multiple version iconThere are 2 versions of this paper

Date Written: November 2, 2023

Abstract

We study the uncertain transition to a carbon-neutral economy. The requisite technological innovation is made more probable through research and development (R&D). We explore multiple channels of economic and geoscientific uncertainties that impact this transition, and we show how to assess the relative importance of their varied contributions. We represent the social benefit of R&D and cost of global warming as expected discounted values of social payoffs using a probability measure adjusted for concerns about model misspecification and prior ambiguity. Our quantitative results show the value of R&D investment even when the timing of its technological success is highly uncertain.

Suggested Citation

Barnett, Michael and Brock, William A. and Hansen, Lars Peter and Zhang, Hong, How Should Climate Change Uncertainty Impact Social Valuation and Policy? (November 2, 2023). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2023-140, Available at SSRN: https://ssrn.com/abstract=4621281 or http://dx.doi.org/10.2139/ssrn.4621281

Michael Barnett

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

William A. Brock

University of Wisconsin, Madison - Department of Economics ( email )

1180 Observatory Drive
Madison, WI 53706
United States
608-263-6655 (Phone)
608-263-3876 (Fax)

University of Missouri at Columbia - Department of Economics ( email )

118 Professional Building
Columbia, MO 65211
United States

Lars Peter Hansen (Contact Author)

University of Chicago - Department of Economics ( email )

1101 E 58th ST
Chicago, IL 60637
United States
773-702-8170 (Phone)
773-702-8490 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Hong Zhang

Argonne National Laboratory ( email )

9700 S. Cass Avenue
Argonne, IL 60439
United States

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