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Uncertain outcomes and climate change policy

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  • Pindyck, Robert S.

Abstract

I incorporate distributions for temperature change and its economic impact in an analysis of climate change policy. As a measure of willingness to pay (WTP), I estimate the fraction of consumption w⁎(τ) that society would be willing to sacrifice to ensure that any increase in temperature at a future point is limited to τ. Using information on distributions for temperature change and economic impact from recent studies assembled by the IPCC and others, I fit displaced gamma distributions for these variables. These fitted distributions, which roughly reflect the “state of knowledge” regarding warming and its impact, generally yield values of w⁎(τ) below 2%, even for small values of τ, consistent with moderate abatement policies. I also calculate WTP for shifts in the mean and standard deviation of the temperature distribution, and show how WTP, and thus the demand for abatement, are driven more by outcome uncertainty than expected outcomes.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 63 (2012)
Issue (Month): 3 ()
Pages: 289-303

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Handle: RePEc:eee:jeeman:v:63:y:2012:i:3:p:289-303

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Web page: http://www.elsevier.com/locate/inca/622870

Related research

Keywords: Environmental policy; Climate change; Global warming; Economic impact; Uncertainty; Catastrophic outcomes; Willingness to pay;

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  1. > Environmental and Natural Resource Economics > Climate economics > Irreversibility and learning
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