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Adapting to Climate Change: Equilibrium Welfare Implications for Large and Small Economies

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  • Martin Farnham
  • Peter Kennedy

Abstract

We show that the availability of adaptation can be welfare-reducing in the non-cooperative equilibrium in a setting with multiple countries. Adaptation is a private good while abatement is a public good. This means that substitution out of abatement and into adaptation by any one country imposes a negative externality on all other countries. The potentially deleterious impact of adaptation is asymmetric: small economies are most likely to be hurt by the availability of adaptation because they control a small fraction of global emissions relative to the biggest emitters. Copyright Springer Science+Business Media Dordrecht 2015

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  • Martin Farnham & Peter Kennedy, 2015. "Adapting to Climate Change: Equilibrium Welfare Implications for Large and Small Economies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 61(3), pages 345-363, July.
    • Handle: RePEc:kap:enreec:v:61:y:2015:i:3:p:345-363
    DOI: 10.1007/s10640-014-9795-7
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    5. Heike Auerswald & Kai A. Konrad & Marcel Thum, 2018. "Adaptation, mitigation and risk-taking in climate policy," Journal of Economics, Springer, vol. 124(3), pages 269-287, July.

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