TOWARD IMPACT FUNCTIONS FOR STOCHASTIC CLIMATE CHANGE

Francisco Estrada and Richard Tol

Climate Change Economics (CCE), 2015, vol. 06, issue 04, 1-13

Abstract: Most functions of economic impact assume that climate change is smooth. We here propose impact functions that have stochastic climate change as an input. These functions are identical in shape and have similar parameters as do deterministic impact functions. The mean stochastic impacts are thus similar to deterministic impacts. Welfare effects are larger, and the stochasticity premium is larger than the risk premium. Results suggest that stochasticity is more important for past impacts than for future impacts. This outcome is partly caused by an underestimation of natural variability in the 21st century climate projections.

Keywords: Economic impact of climate change; stochasticity; risk premium (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (6)

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Working Paper: Towards Impact Functions for Stochastic Climate Change (2013)
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DOI: 10.1142/S2010007815500153

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