Uncertainty in Integrated Assessment Models of Climate Change: Alternative Analytical Approaches
AbstractUncertainty plays a key role in the economics of climate change, and the discussions surrounding its implications for climate policy are far from settled. We give an overview of the literature on uncertainty in integrated assessment models of climate change and identify some future research needs. In the paper, we pay particular attention to three different and complementary approaches that model uncertainty in association with integrated assessment models: the discrete uncertainty modeling, the most common way to incorporate uncertainty in complex climate-economy models: the real options analysis, a simplified way to identify and value flexibility: the continuous-time stochastic dynamic programming, which is computationally most challenging but necessary if persistent stochasticity is considered.
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Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2011.02.
Date of creation: Jan 2011
Date of revision:
Uncertainty; Learning; Economics of Climate Change; Integrated Assessment Models; Real Options;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-12 (All new papers)
- NEP-ENE-2011-02-12 (Energy Economics)
- NEP-ENV-2011-02-12 (Environmental Economics)
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- Gren, Ing-Marie & Carlsson, Mattias & Elofsson, Katarina & Munnich, Miriam, 2012. "Stochastic carbon sinks for combating carbon dioxide emissions in the EU," Energy Economics, Elsevier, vol. 34(5), pages 1523-1531.
- Daiju Narita & Martin F. Quaas, 2012. "Adaptation to Climate Change and Climate Variability: Do It Now or Wait and See?," Kiel Working Papers 1809, Kiel Institute for the World Economy.
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