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Models-as-Usual for Unusual Risks? On the Value of Catastrophic Climate Change

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  • Antoine Bommier
  • Bruno Lanz
  • Stéphane Zuber

Abstract

We study the role of alternative intertemporal preference representations in a model of economic growth, stock pollutant and endogenous risk of catastrophic collapse. We contrast the traditional “discounted utility” model, which assumes risk neutrality with respect to intertemporal utility, with a multiplicative choice model that displays risk aversion in that dimension. First, we show that both representations of preferences can rationalize the same “business as usual” economy for a given interest rate and no pollution externality. Second, once we introduce a collapse risk whose hazard rate is a function of the pollution stock, multiplicative preferences recommend a much more stringent policy response. An illustration in the context of climate change indicates that switching to the multiplicative preference representation has a similar effect, in terms of policy recommendations, as scaling up the schedule of the hazard rate by a factor of 100.

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  • Antoine Bommier & Bruno Lanz & Stéphane Zuber, 2013. "Models-as-Usual for Unusual Risks? On the Value of Catastrophic Climate Change," CIES Research Paper series 21-2013, Centre for International Environmental Studies, The Graduate Institute.
  • Handle: RePEc:gii:ciesrp:cies_rp_21
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    Cited by:

    1. Aurélie Méjean & Antonin Pottier & Stéphane Zuber & Marc Fleurbaey, 2015. "Intergenerational equity under catastrophic climate change," Post-Print hal-01677308, HAL.
    2. Aurélie Méjean & Antonin Pottier & Stéphane Zuber & Marc Fleurbaey, 2015. "Intergenerational equity under catastrophic climate change," Post-Print hal-01677308, HAL.
    3. Can Askan Mavi, 2017. "What Can Abrupt Events Tell Us About Sustainability ?," Working Papers hal-01628682, HAL.
    4. Aurélie Méjean & Antonin Pottier & Stéphane Zuber & Marc Fleurbaey, 2015. "Intergenerational equity under catastrophic climate change," Post-Print hal-01677308, HAL.
    5. Karel Doubravský & Alena Kocmanová & Mirko Dohnal, 2018. "Analysis of Sustainability Decision Trees Generated by Qualitative Models Based on Equationless Heuristics," Sustainability, MDPI, Open Access Journal, vol. 10(7), pages 1-18, July.
    6. Can Askan Mavi, 2017. "Can a hazardous event be another source of poverty traps ?," Working Papers 2017.14, FAERE - French Association of Environmental and Resource Economists.
    7. Aurélie Méjean & Antonin Pottier & Stéphane Zuber & Marc Fleurbaey, 2015. "Intergenerational equity under catastrophic climate change," Post-Print hal-01677308, HAL.
    8. Can Askan Mavi, 2016. "Uncertain Catastrophic Events : Another Source of Environmental Traps ?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01275174, HAL.
    9. Aurélie Méjean & Antonin Pottier & Stéphane Zuber & Marc Fleurbaey, 2015. "Intergenerational equity under catastrophic climate change," Post-Print hal-01677308, HAL.
    10. Aurélie Méjean & Antonin Pottier & Stéphane Zuber & Marc Fleurbaey, 2015. "Intergenerational equity under catastrophic climate change," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01677308, HAL.
    11. Can Askan Mavi, 2016. "Uncertain Catastrophic Events : Another Source of Environmental Traps ?," Working Papers halshs-01275174, HAL.
    12. Aurélie Méjean & Antonin Pottier & Stéphane Zuber & Marc Fleurbaey, 2015. "Intergenerational equity under catastrophic climate change," Post-Print hal-01677308, HAL.
    13. Zerrahn, Alexander, 2017. "Wind Power and Externalities," Ecological Economics, Elsevier, vol. 141(C), pages 245-260.
    14. Aurélie Méjean & Antonin Pottier & Stéphane Zuber & Marc Fleurbaey, 2015. "Intergenerational equity under catastrophic climate change," Post-Print hal-01677308, HAL.
    15. Aurélie Méjean & Antonin Pottier & Stéphane Zuber & Marc Fleurbaey, 2015. "Intergenerational equity under catastrophic climate change," Post-Print hal-01677308, HAL.
    16. Lucas Bretschger & Alexandra Vinogradova, 2014. "Growth and Mitigation Policies with Uncertain Climate Damage," CESifo Working Paper Series 5085, CESifo.
    17. Can Askan Mavi, 2019. "Can harmful events be another source of environmental traps?," CEE-M Working Papers halshs-02141789, CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro.
    18. Mavi, Can Askan, 2019. "What can catastrophic events tell us about sustainability?," Journal of Mathematical Economics, Elsevier, vol. 83(C), pages 70-83.
    19. Aurélie Méjean & Antonin Pottier & Stéphane Zuber & Marc Fleurbaey, 2015. "Intergenerational equity under catastrophic climate change," Post-Print hal-01677308, HAL.
    20. Adler, Matthew D. & Treich, Nicolas, 2017. "Utilitarianism, prioritarianism, and intergenerational equity: A cake eating model," Mathematical Social Sciences, Elsevier, vol. 87(C), pages 94-102.
    21. Can Askan Mavi, 2019. "Can harmful events be another source of environmental traps?," Working Papers halshs-02141789, HAL.
    22. Aurélie Méjean & Antonin Pottier & Stéphane Zuber & Marc Fleurbaey, 2015. "Intergenerational equity under catastrophic climate change," Post-Print hal-01677308, HAL.
    23. Can Askan Mavi, 2017. "Can a hazardous event be another source of poverty traps ?," Working Papers hal-01522087, HAL.

    More about this item

    Keywords

    Environmental policy; Climate change; Catastrophic risks; Risk aversion; Discounting.;

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D99 - Microeconomics - - Micro-Based Behavioral Economics - - - Other
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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