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Climate Change Adaptation under Heterogeneous Beliefs

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  • Marcel Nutz
  • Florian Stebegg

Abstract

We study strategic interactions between firms with heterogeneous beliefs about future climate impacts. To that end, we propose a Cournot-type equilibrium model where firms choose mitigation efforts and production quantities such as to maximize the expected profits under their subjective beliefs. It is shown that optimal mitigation efforts are increased by the presence of uncertainty and act as substitutes; i.e., one firm's lack of mitigation incentivizes others to act more decidedly, and vice versa.

Suggested Citation

  • Marcel Nutz & Florian Stebegg, 2021. "Climate Change Adaptation under Heterogeneous Beliefs," Papers 2101.08424, arXiv.org, revised Feb 2022.
    • Handle: RePEc:arx:papers:2101.08424
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