Understanding climate damages: Consumption versus investment

Gregory Casey, Stephie Fried and Matthew Gibson

European Economic Review, 2024, vol. 167, issue C

Abstract: Existing climate-economy models assume climate change has equal impacts on the productivity of firms that produce consumption and investment goods and services. We develop a model of structural change to show that the split between damage to consumption and investment productivity matters for the aggregate consequences of climate change. When investment is more vulnerable to climate, we find smaller short-run consumption losses than leading models suggest, but larger long-run consumption losses. We provide a quantitative illustration of these effects for one type of climate damage in the US economy: labor productivity losses from heat stress. We find that accounting for heterogeneous damages increases the welfare cost of the climate damage from heat stress by approximately 4 to 23%, depending on the discount factor.

Keywords: Climate change; Structural transformation; Growth (search for similar items in EconPapers)
JEL-codes: O13 O44 Q56 (search for similar items in EconPapers)
Date: 2024
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Related works:
Working Paper: Understanding Climate Damages: Consumption versus Investment (2024)
Working Paper: Understanding Climate Damages: Consumption versus Investment (2022)
Working Paper: Understanding Climate Damages: Consumption versus Investment (2022)
Working Paper: Understanding Climate Damages: Consumption versus Investment (2021)
Working Paper: Understanding Climate Damages: Consumption versus Investment (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:167:y:2024:i:c:s0014292124001284

DOI: 10.1016/j.euroecorev.2024.104799

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