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Adaptation to catastrophic events with two layers uncertainty: Central planner perspective

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Listed:
  • Bondarev, Anton
  • Krysiak, Frank C.

Abstract

We study the optimal adaptation to extreme climate events by the central gov- ernment in a setup where events are dynamically uncertain and the government does not know the true probabilities of events. We analyze dierent policy decision rules minimizing expected welfare losses for sites with dierent expected damages from the catastrophic event. We nd out under which conditions it is optimal to wait before implementation of a prevention measures to obtain more information about the underlying probabilistic process. This waiting time crucially depends on the information set of the planner and the implemented learning procedure. We study dierent learning procedures on behalf of the planner ranging from simple perfect learning to two-layers Bayesian updating in the form of Dirichlet mixture processes.

Suggested Citation

  • Bondarev, Anton & Krysiak, Frank C., 2018. "Adaptation to catastrophic events with two layers uncertainty: Central planner perspective," Working papers 2018/10, Faculty of Business and Economics - University of Basel.
  • Handle: RePEc:bsl:wpaper:2018/10
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    References listed on IDEAS

    as
    1. Sally Kane & Jason Shogren, 2000. "Linking Adaptation and Mitigation in Climate Change Policy," Climatic Change, Springer, vol. 45(1), pages 75-102, April.
    2. Frédéric Babonneau & Alain Haurie & Marc Vielle, 2013. "A robust meta-game for climate negotiations," Computational Management Science, Springer, vol. 10(4), pages 299-329, December.
    3. Mensink, Paul & Requate, Till, 2005. "The Dixit-Pindyck and the Arrow-Fisher-Hanemann-Henry option values are not equivalent: a note on Fisher (2000)," Resource and Energy Economics, Elsevier, vol. 27(1), pages 83-88, January.
    4. repec:dau:papers:123456789/1906 is not listed on IDEAS
    5. Buob, Seraina & Stephan, Gunter, 2011. "To mitigate or to adapt: How to confront global climate change," European Journal of Political Economy, Elsevier, vol. 27(1), pages 1-16, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    climate change adaptation; catastrophic events; model uncertainty; Bayesian updating; Dirichlet mixtures;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies

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