Risk and aversion in the integrated assessment of climate change

Benjamin Crost and Christian Traeger

Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley

Abstract: We analyze the impact of damage uncertainty on optimal mitigation policies in the integrated assessment of climate change. Usually, these models analyzeuncertainty by averaging deterministic paths. In contrast, we build a consistentmodel deriving optimal policy rules under persistent uncertainty. For this purpose,we construct a close relative of the DICE model in a recursive dynamic programming framework. Our recursive approach allows us to disentangle effects of risk, risk aversion, and aversion to intertemporal substitution. We analyze different ways how damage uncertainty can affect the DICE equations. We compare the optimal policies to those resulting from the wide-spread ex-ante uncertainty approach averaging deterministic paths.

Keywords: climate change; uncertainty; integrated assessment; risk aversion; intertemporal substitution; recursive utility; dynamic programming; Social and Behavioral Sciences; Life Sciences (search for similar items in EconPapers)
Date: 2011-11-01
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env and nep-upt
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Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Risk and Aversion in the Integrated Assessment of Climate Change (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:cdl:agrebk:qt1562s275

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