Seawalls and Stilts: A Quantitative Macro Study of Climate Adaptation

Stephie Fried
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Stephie Fried: Arizona State University

No 898, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: Investment in adaptation capital reduces the damage from extreme weather, mitigating the welfare cost of climate change. Federal aid for disaster relief reduces the net costs to localities that experience extreme weather, decreasing their incentives to invest in adaptation capital. I develop a heterogenous-agent macro model to quantify the relationship between adaptation capital, federal disaster policy, and climate change. I find that federal aid for disaster relief substantially reduces adaptation investment. However, the federal subsidy for adaptation more than offsets this moral hazard effect. I introduce climate change into the model as a permanent, increase in the severity of extreme weather. I find that adaptation reduces the welfare cost of this climate change by 15-20 percent.

Date: 2019
New Economics Papers: this item is included in nep-agr, nep-dge and nep-env
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:898

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