IDEAS home Printed from https://ideas.repec.org/a/eee/reecon/v72y2018i2p251-262.html
   My bibliography  Save this article

The impact of climate change skepticism on adaptation in a market economy

Author

Listed:
  • Kahn, Matthew E.
  • Zhao, Daxuan

Abstract

Climate change will increase the risk of temperature extremes. Induced innovation could offset some of this threat. This paper explores the demand and supply for climate adaptation innovation in a market economy. Such innovation attenuates the past relationship between the population death rate and extreme heat. Climate change induces this innovation because the rising temperatures increase demand for self protection products and for profit firms respond to these incentives. We then augment the model to introduce “climate skeptics”. Such skeptics reject the claim that the world’s average temperature is rising and thus do not increasingly demand adaptation products. In an economy featuring no government to enact optimal taxation, we quantify how rational agents are affected by the presence of climate skeptics.

Suggested Citation

  • Kahn, Matthew E. & Zhao, Daxuan, 2018. "The impact of climate change skepticism on adaptation in a market economy," Research in Economics, Elsevier, vol. 72(2), pages 251-262.
    • Handle: RePEc:eee:reecon:v:72:y:2018:i:2:p:251-262
    DOI: 10.1016/j.rie.2017.11.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1090944317303010
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.rie.2017.11.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Moreno-Cruz, Juan B. & Smulders, Sjak, 2017. "Revisiting the economics of climate change: the role of geoengineering," Research in Economics, Elsevier, vol. 71(2), pages 212-224.
    2. Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2012. "The Environment and Directed Technical Change," American Economic Review, American Economic Association, vol. 102(1), pages 131-166, February.
    3. Kaïs Dachraoui & Georges Dionne & Louis Eeckhoudt & Philippe Godfroid, 2004. "Comparative Mixed Risk Aversion: Definition and Application to Self-Protection and Willingness to Pay," Journal of Risk and Uncertainty, Springer, vol. 29(3), pages 261-276, December.
    4. John Y. Campbell, 2016. "Restoring Rational Choice: The Challenge of Consumer Financial Regulation," American Economic Review, American Economic Association, vol. 106(5), pages 1-30, May.
    5. Marshall Burke & Kyle Emerick, 2016. "Adaptation to Climate Change: Evidence from US Agriculture," American Economic Journal: Economic Policy, American Economic Association, vol. 8(3), pages 106-140, August.
    6. David Albouy & Walter Graf & Ryan Kellogg & Hendrik Wolff, 2016. "Climate Amenities, Climate Change, and American Quality of Life," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(1), pages 205-246.
    7. Robert S. Pindyck, 2013. "Climate Change Policy: What Do the Models Tell Us?," Journal of Economic Literature, American Economic Association, vol. 51(3), pages 860-872, September.
    8. Daron Acemoglu & Joshua Linn, 2004. "Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(3), pages 1049-1090.
    9. Brunner, Karl & Meltzer, Allan H., 1976. "The Phillips curve," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 1-18, January.
    10. Olivier Deschênes & Michael Greenstone, 2007. "The Economic Impacts of Climate Change: Evidence from Agricultural Output and Random Fluctuations in Weather," American Economic Review, American Economic Association, vol. 97(1), pages 354-385, March.
    11. Arthur Snow, 2011. "Ambiguity aversion and the propensities for self-insurance and self-protection," Journal of Risk and Uncertainty, Springer, vol. 42(1), pages 27-43, February.
    12. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
    13. Shogren, Jason F, 1990. "The Impact of Self-protection and Self-insurance on Individual Response to Risk," Journal of Risk and Uncertainty, Springer, vol. 3(2), pages 191-204, June.
    14. Tatyana Deryugina & Solomon M. Hsiang, 2014. "Does the Environment Still Matter? Daily Temperature and Income in the United States," NBER Working Papers 20750, National Bureau of Economic Research, Inc.
    15. Klaus Desmet & Dávid Krisztián Nagy & Esteban Rossi-Hansberg, 2018. "The Geography of Development," Journal of Political Economy, University of Chicago Press, vol. 126(3), pages 903-983.
    16. Antoci, Angelo & Bartolini, Stefano, 2004. "Negative externalities, defensive expenditures and labour supply in an evolutionary context," Environment and Development Economics, Cambridge University Press, vol. 9(5), pages 591-612, October.
    17. Nordhaus, William D & Yang, Zili, 1996. "A Regional Dynamic General-Equilibrium Model of Alternative Climate-Change Strategies," American Economic Review, American Economic Association, vol. 86(4), pages 741-765, September.
    18. Daron Acemoglu, 2002. "Directed Technical Change," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(4), pages 781-809.
    19. Andreoni, James & Levinson, Arik, 2001. "The simple analytics of the environmental Kuznets curve," Journal of Public Economics, Elsevier, vol. 80(2), pages 269-286, May.
    20. Hirsch, Seev, 1976. "An International Trade and Investment Theory of the Firm," Oxford Economic Papers, Oxford University Press, vol. 28(2), pages 258-270, July.
    21. R. M. Solow, 1974. "Intergenerational Equity and Exhaustible Resources," Review of Economic Studies, Oxford University Press, vol. 41(5), pages 29-45.
    22. Klaus Desmet & Dávid Krisztián Nagy & Esteban Rossi-Hansberg, 2015. "The Geography of Development: Evaluating Migration Restrictions and Coastal Flooding," NBER Working Papers 21087, National Bureau of Economic Research, Inc.
    23. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2012. "Temperature Shocks and Economic Growth: Evidence from the Last Half Century," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(3), pages 66-95, July.
    24. Hogarth, Robin M & Kunreuther, Howard, 1989. "Risk, Ambiguity, and Insurance," Journal of Risk and Uncertainty, Springer, vol. 2(1), pages 5-35, April.
    25. Michael J. Roberts & Wolfram Schlenker & Jonathan Eyer, 2013. "Agronomic Weather Measures in Econometric Models of Crop Yield with Implications for Climate Change," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(2), pages 236-243.
    26. Solomon M. Hsiang & Amir S. Jina, 2014. "The Causal Effect of Environmental Catastrophe on Long-Run Economic Growth: Evidence From 6,700 Cyclones," NBER Working Papers 20352, National Bureau of Economic Research, Inc.
    27. -, 2009. "The economics of climate change," Sede Subregional de la CEPAL para el Caribe (Estudios e Investigaciones) 38679, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    28. Bunten, Devin & Kahn, Matthew E., 2017. "Optimal real estate capital durability and localized climate change disaster risk," Journal of Housing Economics, Elsevier, vol. 36(C), pages 1-7.
    29. Joseph E. Stiglitz, 1974. "Incentives and Risk Sharing in Sharecropping," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(2), pages 219-255.
    30. Olivier Deschênes & Michael Greenstone, 2011. "Climate Change, Mortality, and Adaptation: Evidence from Annual Fluctuations in Weather in the US," American Economic Journal: Applied Economics, American Economic Association, vol. 3(4), pages 152-185, October.
    31. George A. Akerlof & Rachel E. Kranton, 2000. "Economics and Identity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(3), pages 715-753.
    32. Laura A. Bakkensen & Lint Barrage, 2017. "Flood Risk Belief Heterogeneity and Coastal Home Price Dynamics: Going Under Water?," NBER Working Papers 23854, National Bureau of Economic Research, Inc.
    33. Alan Barreca & Karen Clay & Olivier Deschenes & Michael Greenstone & Joseph S. Shapiro, 2016. "Adapting to Climate Change: The Remarkable Decline in the US Temperature-Mortality Relationship over the Twentieth Century," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 105-159.
    34. Sherwin Rosen, 2002. "Markets and Diversity," American Economic Review, American Economic Association, vol. 92(1), pages 1-15, March.
    35. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-648, July-Aug..
    36. William D. Nordhaus, 2011. "Estimates of the Social Cost of Carbon: Background and Results from the RICE-2011 Model," NBER Working Papers 17540, National Bureau of Economic Research, Inc.
    37. Olivier Deschênes & Michael Greenstone, 2012. "The Economic Impacts of Climate Change: Evidence from Agricultural Output and Random Fluctuations in Weather: Reply," American Economic Review, American Economic Association, vol. 102(7), pages 3761-3773, December.
    38. Joshua Graff Zivin & Matthew E. Kahn, 2016. "Industrial Productivity in a Hotter World: The Aggregate Implications of Heterogeneous Firm Investment in Air Conditioning," NBER Working Papers 22962, National Bureau of Economic Research, Inc.
    39. Partha Dasgupta & Geoffrey Heal, 1974. "The Optimal Depletion of Exhaustible Resources," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(5), pages 3-28.
    40. Stokey, Nancy L, 1998. "Are There Limits to Growth?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 1-31, February.
    41. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    42. Lucas W. Davis, 2008. "Durable goods and residential demand for energy and water: evidence from a field trial," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 530-546, June.
    43. William Nordhaus, 2015. "Climate Clubs: Overcoming Free-Riding in International Climate Policy," American Economic Review, American Economic Association, vol. 105(4), pages 1339-1370, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The 2018 Nobel Prize in Economics
      by Matthew Kahn in Environmental and Urban Economics on 2018-10-21 02:17:00
    2. Low Carbon Suburban Living in 2021 in our "Post-COVID19" World
      by Matthew E. Kahn in Environmental and Urban Economics on 2020-04-05 23:04:00
    3. Climate Change Adaptation for Urban Indian Slum Dwellers: A New Economics Research Agenda
      by Matthew E. Kahn in Environmental and Urban Economics on 2020-11-22 14:40:00
    4. Climate Change Adaptation in a Spatial Economy
      by Matthew E. Kahn in Environmental and Urban Economics on 2020-11-26 16:10:00
    5. The Microeconomics of the Rise of Green Buildings and Climate Change Adaptation: A California Example
      by Matthew E. Kahn in Environmental and Urban Economics on 2020-12-23 16:05:00
    6. How Does Applied Microeconomic Research Accelerate Climate Change Adaptation?
      by Matthew E. Kahn in Environmental and Urban Economics on 2021-05-13 14:39:00
    7. Incorporating Local Public Health Dynamics into The Rosen/Roback Spatial Equilibrium Model
      by Matthew E. Kahn in Environmental and Urban Economics on 2021-10-24 12:11:00
    8. The More Climate Skeptics There Are, the Fewer Climate Entrepreneurs
      by Matthew E. Kahn in HBR Blog Network on 2017-03-16 19:13:53
    9. How Do Environmental Economists Know that the Social Cost of Carbon is $42 a Ton?
      by Matthew Kahn in Environmental and Urban Economics on 2017-02-19 23:43:00
    10. How Do Skeptics Affect Our Collective Ability to Adapt to Climate Change?
      by Matthew Kahn in Environmental and Urban Economics on 2017-02-16 21:12:00
    11. My Recent Writing on Climate Economics
      by Matthew Kahn in Environmental and Urban Economics on 2017-02-17 06:19:00
    12. My New HBR Piece on Climate Skeptics and Induced Innovation
      by Matthew Kahn in Environmental and Urban Economics on 2017-03-16 22:17:00
    13. An Academic Named "Kahn" (not me) Opines About Climate Change Adaptation in the NY Times
      by Matthew Kahn in Environmental and Urban Economics on 2017-04-23 19:36:00
    14. My Upcoming David S. Saurman Provocative Lecture at SJSU
      by Matthew Kahn in Environmental and Urban Economics on 2017-04-07 19:00:00
    15. Should Hollywood Make More Movies About Climate Change?
      by Matthew Kahn in Environmental and Urban Economics on 2017-04-29 09:01:00
    16. A "Julian Simon" Style Test of the Climate Change Adaptation Hypothesis
      by Matthew Kahn in Environmental and Urban Economics on 2017-05-26 21:16:00
    17. An "Old School" University of Chicago Price Theory Problem on the Economics of Climate Change Adaptation
      by Matthew Kahn in Environmental and Urban Economics on 2017-07-04 19:19:00
    18. Sane Discussion of Disaster Adaptation in the NY Times
      by Matthew Kahn in Environmental and Urban Economics on 2017-09-30 22:55:00
    19. The Amazon HQ City Decision and Lessons for Urban Adaptation to Climate Change
      by Matthew Kahn in Environmental and Urban Economics on 2017-09-08 19:48:00
    20. Austrian Empirical Economics?
      by Matthew Kahn in Environmental and Urban Economics on 2017-11-23 23:19:00
    21. Optimism on Climate Change Adaptation: Lessons from Marathon Races
      by Matthew Kahn in Environmental and Urban Economics on 2017-11-04 21:33:00
    22. Week in review – science edition
      by ? in Climate Science on 2021-06-06 22:07:30
    23. Week in review – science edition
      by ? in Iowa Climate on 2021-06-06 18:36:51
    24. Week in review – science edition
      by ? in Climate Etc. on 2021-06-06 18:20:48

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Peter Jacobsen & Louis Rouanet, 2022. "Economists versus engineers: Two approaches to environmental problems," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 35(3), pages 359-381, September.
    2. Mohaddes, Kamiar & Williams, Rhys J., 2020. "The adaptive investment effect: Evidence from Chinese provinces," Economics Letters, Elsevier, vol. 193(C).
    3. Laura A. Bakkensen & Lint Barrage, 2017. "Flood Risk Belief Heterogeneity and Coastal Home Price Dynamics: Going Under Water?," NBER Working Papers 23854, National Bureau of Economic Research, Inc.
    4. Barrage, Lint & Furst, Jacob, 2019. "Housing investment, sea level rise, and climate change beliefs," Economics Letters, Elsevier, vol. 177(C), pages 105-108.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kahn, Matthew E., 2015. "Climate Change Adaptation: Lessons from Urban Economics," Strategic Behavior and the Environment, now publishers, vol. 5(1), pages 1-30, June.
    2. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2014. "What Do We Learn from the Weather? The New Climate-Economy Literature," Journal of Economic Literature, American Economic Association, vol. 52(3), pages 740-798, September.
    3. Solomon Hsiang & Paulina Oliva & Reed Walker, 2019. "The Distribution of Environmental Damages," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 13(1), pages 83-103.
    4. Riccardo Colacito & Bridget Hoffmann & Toan Phan, 2019. "Temperature and Growth: A Panel Analysis of the United States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(2-3), pages 313-368, March.
    5. José-Luis Cruz & Esteban Rossi-Hansberg, 2021. "The Economic Geography of Global Warming," NBER Working Papers 28466, National Bureau of Economic Research, Inc.
    6. Hassler, J. & Krusell, P. & Smith, A.A., 2016. "Environmental Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1893-2008, Elsevier.
    7. Desmet, Klaus & Rossi-Hansberg, Esteban, 2015. "On the spatial economic impact of global warming," Journal of Urban Economics, Elsevier, vol. 88(C), pages 16-37.
    8. Yubin Zhao & Shuguang Liu, 2023. "Effects of Climate Change on Economic Growth: A Perspective of the Heterogeneous Climate Regions in Africa," Sustainability, MDPI, vol. 15(9), pages 1-22, April.
    9. Devin Michelle Bunten & Matthew E. Kahn, 2014. "The Impact of Emerging Climate Risks on Urban Real Estate Price Dynamics," NBER Working Papers 20018, National Bureau of Economic Research, Inc.
    10. Li, Chengzheng & Cong, Jiajia & Yin, Lijuan, 2021. "Extreme heat and exports: Evidence from Chinese exporters," China Economic Review, Elsevier, vol. 66(C).
    11. Stefano Giglio & Bryan Kelly & Johannes Stroebel, 2021. "Climate Finance," Annual Review of Financial Economics, Annual Reviews, vol. 13(1), pages 15-36, November.
    12. Kahn, Matthew E. & Mohaddes, Kamiar & Ng, Ryan N.C. & Pesaran, M. Hashem & Raissi, Mehdi & Yang, Jui-Chung, 2021. "Long-term macroeconomic effects of climate change: A cross-country analysis," Energy Economics, Elsevier, vol. 104(C).
    13. Letta, Marco & Montalbano, Pierluigi & Tol, Richard S.J., 2018. "Temperature shocks, short-term growth and poverty thresholds: Evidence from rural Tanzania," World Development, Elsevier, vol. 112(C), pages 13-32.
    14. Laurence Kotlikoff & Felix Kubler & Andrey Polbin & Jeffrey Sachs & Simon Scheidegger, 2021. "Making Carbon Taxation A Generational Win Win," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(1), pages 3-46, February.
    15. Ar'anzazu de Juan & Pilar Poncela & Vladimir Rodr'iguez-Caballero & Esther Ruiz, 2022. "Economic activity and climate change," Papers 2206.03187, arXiv.org, revised Jun 2022.
    16. R. Jisung Park & Joshua Goodman & Michael Hurwitz & Jonathan Smith, 2020. "Heat and Learning," American Economic Journal: Economic Policy, American Economic Association, vol. 12(2), pages 306-339, May.
    17. Drudi, Francesco & Moench, Emanuel & Holthausen, Cornelia & Weber, Pierre-François & Ferrucci, Gianluigi & Setzer, Ralph & Adao, Bernardino & Dées, Stéphane & Alogoskoufis, Spyros & Téllez, Mar Delgad, 2021. "Climate change and monetary policy in the euro area," Occasional Paper Series 271, European Central Bank.
    18. Geoffrey Heal, 2017. "The Economics of the Climate," Journal of Economic Literature, American Economic Association, vol. 55(3), pages 1046-1063, September.
    19. Hu, Haiqing & Wei, Wei & Chang, Chun-Ping, 2022. "Examining the impact of extreme temperature on green innovation in China: Evidence from city-level data," Energy Economics, Elsevier, vol. 114(C).
    20. Acevedo, Sebastian & Mrkaic, Mico & Novta, Natalija & Pugacheva, Evgenia & Topalova, Petia, 2020. "The Effects of Weather Shocks on Economic Activity: What are the Channels of Impact?," Journal of Macroeconomics, Elsevier, vol. 65(C).

    More about this item

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reecon:v:72:y:2018:i:2:p:251-262. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622941 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.