IDEAS home Printed from https://ideas.repec.org/a/kap/enreec/v74y2019i4d10.1007_s10640-019-00384-1.html
   My bibliography  Save this article

Building Risk into the Mitigation/Adaptation Decisions simulated by Integrated Assessment Models

Author

Listed:
  • Anil Markandya

    (Scientific Campus of the University of the Basque Country)

  • Enrica Cian

    (University of Venice Ca’ Foscari
    Fondazione Euro-Mediterranean Center on Climate Change)

  • Laurent Drouet

    (Fondazione Euro-Mediterranean Center on Climate Change)

  • Josué M. Polanco-Martínez

    (Scientific Campus of the University of the Basque Country
    University of Bordeaux)

  • Francesco Bosello

    () (Fondazione Euro-Mediterranean Center on Climate Change
    University of Milan)

Abstract

Abstract This paper proposes an operationally simple and easily generalizable methodology to incorporate climate change damage uncertainty into Integrated Assessment Models (IAMs). First uncertainty is transformed into a risk measure by extracting damage distribution means and variances from an ensemble of socio economic and climate change scenarios. Then a risk premium is computed under different degrees of risk aversion, quantifying what society would be willing to pay to insure against the uncertainty of the damages. Our estimates show that the premium for the risk is a potentially significant addition to the “standard average damage”, but highly sensitive to the attitudes toward risk. In the last research phase, the risk premium is incorporated into the climate change damage function of a widely used IAM which shows, consequently, a substantial increase in both mitigation and adaptation efforts, reflecting a more precautionary attitude by the social planner. Interestingly, adaptation is stimulated more than mitigation in the first half of this century, while the situation reverses afterwards.

Suggested Citation

  • Anil Markandya & Enrica Cian & Laurent Drouet & Josué M. Polanco-Martínez & Francesco Bosello, 2019. "Building Risk into the Mitigation/Adaptation Decisions simulated by Integrated Assessment Models," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(4), pages 1687-1721, December.
  • Handle: RePEc:kap:enreec:v:74:y:2019:i:4:d:10.1007_s10640-019-00384-1
    DOI: 10.1007/s10640-019-00384-1
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10640-019-00384-1
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Risk; Uncertainty; Climate change damages; Adaptation; Mitigation;

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:enreec:v:74:y:2019:i:4:d:10.1007_s10640-019-00384-1. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Springer Nature Abstracting and Indexing). General contact details of provider: http://www.springer.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.