Sharing of Climate Risks across World Regions

Johannes Emmerling

No 2014.78, Working Papers from Fondazione Eni Enrico Mattei

Abstract: Uncertainty is prevalent in the context of climate change impacts. Moreover, the distribution across the globe is not uniform. We analyze how climate risks could be reduced via an insurance scheme at the global scale across regions and quantify the potential welfare gains from such a scheme. Starting from the standard welfare analysis in Integrated Assessment Models (IAMs), which assumes no risk sharing across region, we introduce global risk sharing via a market for state-dependent Arrow-Debreu securities. We show that this allows equalizing relative consumption differences between states of the world across regions. We estimate that such risk sharing scheme of climate risks could lead to welfare gains reducing the global costs of climate change by up to one third, while the amount of transfers required is substantial. This provides arguments for considering risk sharing in IAMs, but also for potentially welfare increasing negotiations about sharing risks of climate change at the global level.

Keywords: Uncertainty; Risk Sharing; Insurance; Climate Change; Risk Aversion (search for similar items in EconPapers)
JEL-codes: D63 D81 Q54 (search for similar items in EconPapers)
Date: 2014-09
New Economics Papers: this item is included in nep-agr, nep-env, nep-ias and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Sharing of Climate Risks across World Regions (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2014.78

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