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Ambiguity of scientific probability predictions and willingness-to-pay for climate change mitigation policies

Masahide Watanabe and Toshio Fujimi

Research in Economics, 2022, vol. 76, issue 4, 386-402

Abstract: We estimate a smooth ambiguity preference function, wherein an individual faces multiple probability predictions of policy outcomes, and then empirically measure their willingness-to-pay for the policy, ambiguity attitude, and ambiguity premium. Climate change mitigation policy is used as the example. The estimation results reveal that most people have ambiguity-seeking attitudes, but that these attitudes are heterogeneous across individuals. People who are older, are university graduates, have higher income, or trust more in science show stronger ambiguity-seeking attitudes. Their willingness-to-pay can be underestimated if ambiguity is not considered. Moreover, individuals with stronger ambiguity-seeking attitudes support aggressive mitigation policies more strongly. Our estimation strategy is generally applicable to policy evaluations wherein policy outcomes are ambiguous.

Keywords: Ambiguity attitude; Ambiguity premium; Climate change; Policy evaluation; Smooth ambiguity model (search for similar items in EconPapers)
JEL-codes: C25 D81 Q54 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.rie.2022.09.007

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