Uncertainty and Decision in Climate Change Economics
AbstractUncertainty 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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Date of creation: Mar 2013
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Other versions of this item:
- Geoffrey Heal & Antony Millner, 2013. "Uncertainty and decision in climate change economics," Grantham Research Institute on Climate Change and the Environment Working Papers 108, Grantham Research Institute on Climate Change and the Environment.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-06 (All new papers)
- NEP-ENE-2013-04-06 (Energy Economics)
- NEP-ENV-2013-04-06 (Environmental Economics)
- NEP-RES-2013-04-06 (Resource Economics)
- NEP-UPT-2013-04-06 (Utility Models & Prospect Theory)
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