Classical decision rules and adaptation to climate change *

Harry Clarke

Australian Journal of Agricultural and Resource Economics, 2008, vol. 52, issue 4, 487-504

Abstract: One approach to rationalising policies for addressing potentially catastrophic climate change when such policies may prove unnecessary is to suppose the policies provide a form of social insurance even in the presence of pure uncertainty. Then, provided the policies are effective, such insurance can be justified as a precautionary or minimax response. Even if the policies are potentially ineffective however, intervention can be justified as an attempt to minimise the regret experienced by future generations. This reasoning extends to justify 'all weather' policies provided such policies always reduce policy costs. If, however, policy decisions provide 'all weather' benefits in only certain states of the world, this rationale breaks down. Minimising regret can establish a case for 'mixed' policy responses provided adopting a policy mix precludes the chance that intervention will fail altogether. Precautionary policies and policies which minimise regret are computed for a simple, dynamic, adaptive climate change planning problem and sufficient conditions for policy maker pessimism provided. Copyright 2008 The Author. Journal compilation 2008 Australian Agricultural and Resource Economics Society Inc. and Blackwell Publishing Asia Pty Ltd.

Date: 2008
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