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The impact of climate change skepticism on adaptation in a market economy

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  • Kahn, Matthew E.
  • Zhao, Daxuan

Abstract

Climate change will increase the risk of temperature extremes. Induced innovation could offset some of this threat. This paper explores the demand and supply for climate adaptation innovation in a market economy. Such innovation attenuates the past relationship between the population death rate and extreme heat. Climate change induces this innovation because the rising temperatures increase demand for self protection products and for profit firms respond to these incentives. We then augment the model to introduce “climate skeptics”. Such skeptics reject the claim that the world’s average temperature is rising and thus do not increasingly demand adaptation products. In an economy featuring no government to enact optimal taxation, we quantify how rational agents are affected by the presence of climate skeptics.

Suggested Citation

  • Kahn, Matthew E. & Zhao, Daxuan, 2018. "The impact of climate change skepticism on adaptation in a market economy," Research in Economics, Elsevier, vol. 72(2), pages 251-262.
  • Handle: RePEc:eee:reecon:v:72:y:2018:i:2:p:251-262
    DOI: 10.1016/j.rie.2017.11.002
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    1. The 2018 Nobel Prize in Economics
      by Matthew Kahn in Environmental and Urban Economics on 2018-10-21 02:17:00

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    Cited by:

    1. Laura A. Bakkensen & Lint Barrage, 2017. "Flood Risk Belief Heterogeneity and Coastal Home Price Dynamics: Going Under Water?," NBER Working Papers 23854, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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