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Uncertainty and decision in climate change economics

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  • Geoffrey Heal
  • Antony Millner

Abstract

Uncertainty is intrinsic to climate change: we know that the climate is changing, but not precisely how fast or in what ways. Nor do we understand fully the social and economic consequences of these changes, or the options that will be available for reducing climate change. Furthermore the uncertainty about these issues is not readily quantified and expressed in probabilistic terms: we are facing deep uncertainty or ambiguity rather than risk in the classical sense, rendering the classical expected utility framework of limited value. We review the sources of uncertainty about all aspects of climate change and resolve these into various components, commenting on their relative importance. Then we review decision-making frameworks that are appropriate in the absence of quantitative probabilistic information, including non-probabilistic approaches and those based on multiple priors, and discuss their application in climate change economics.

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Bibliographic Info

Paper provided by Grantham Research Institute on Climate Change and the Environment in its series Grantham Research Institute on Climate Change and the Environment Working Papers with number 108.

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Date of creation: Mar 2013
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Handle: RePEc:lsg:lsgwps:wp108

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