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Models-as-usual for unusual risks? On the value of catastrophic climate change

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  • Stéphane Zuber

    () (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, PSE - Paris School of Economics, CNRS - Centre National de la Recherche Scientifique)

  • Bruno Lanz

    () (Center for International Environmental Studies - Graduate Institute Geneva)

  • Antoine Bommier

    () (Chair for Integrative Risk Management and Economics - ETH Zürich - Eidgenössische Technische Hochschule - Swiss Federal Institute of Technology in Zürich [Zürich])

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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Stéphane Zuber & Bruno Lanz & Antoine Bommier, 2015. "Models-as-usual for unusual risks? On the value of catastrophic climate change," PSE - Labex "OSE-Ouvrir la Science Economique" hal-01199503, HAL.
  • Handle: RePEc:hal:pseose:hal-01199503
    DOI: 10.1016/j.jeem.2015.07.003
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01199503
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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, 2016. "Uncertain Catastrophic Events : Another Source of Environmental Traps ?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01275174, HAL.
    4. 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.
    5. Aurélie Méjean & Antonin Pottier & Stéphane Zuber & Marc Fleurbaey, 2015. "Intergenerational equity under catastrophic climate change," Post-Print hal-01677308, HAL.
    6. Can Askan Mavi, 2017. "What Can Abrupt Events Tell Us About Sustainability ?," Working Papers hal-01628682, HAL.
    7. Aurélie Méjean & Antonin Pottier & Stéphane Zuber & Marc Fleurbaey, 2015. "Intergenerational equity under catastrophic climate change," Post-Print hal-01677308, HAL.
    8. Mavi, Can Askan, 2019. "What can catastrophic events tell us about sustainability?," Journal of Mathematical Economics, Elsevier, vol. 83(C), pages 70-83.
    9. Lucas Bretschger & Alexandra Vinogradova, 2014. "Growth and Mitigation Policies with Uncertain Climate Damage," CEEES Paper Series CE3S-02/14, European University at St. Petersburg, Department of Economics.
    10. 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.
    11. Aurélie Méjean & Antonin Pottier & Stéphane Zuber & Marc Fleurbaey, 2015. "Intergenerational equity under catastrophic climate change," Post-Print hal-01677308, HAL.
    12. Aurélie Méjean & Antonin Pottier & Stéphane Zuber & Marc Fleurbaey, 2015. "Intergenerational equity under catastrophic climate change," Post-Print hal-01677308, HAL.
    13. 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.
    14. Can Askan Mavi, 2017. "Can a hazardous event be another source of poverty traps ?," Working Papers hal-01522087, HAL.
    15. 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.
    16. Aurélie Méjean & Antonin Pottier & Stéphane Zuber & Marc Fleurbaey, 2015. "Intergenerational equity under catastrophic climate change," Post-Print hal-01677308, HAL.
    17. Zerrahn, Alexander, 2017. "Wind Power and Externalities," Ecological Economics, Elsevier, vol. 141(C), pages 245-260.
    18. Aurélie Méjean & Antonin Pottier & Stéphane Zuber & Marc Fleurbaey, 2015. "Intergenerational equity under catastrophic climate change," Post-Print hal-01677308, HAL.
    19. 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.
    20. Can Askan Mavi, 2016. "Uncertain Catastrophic Events : Another Source of Environmental Traps ?," Working Papers halshs-01275174, HAL.
    21. Aurélie Méjean & Antonin Pottier & Stéphane Zuber & Marc Fleurbaey, 2015. "Intergenerational equity under catastrophic climate change," Post-Print hal-01677308, HAL.
    22. Can Askan Mavi, 2019. "Can harmful events be another source of environmental traps?," Working Papers halshs-02141789, HAL.
    23. Aurélie Méjean & Antonin Pottier & Stéphane Zuber & Marc Fleurbaey, 2015. "Intergenerational equity under catastrophic climate change," Post-Print hal-01677308, HAL.

    More about this item

    Keywords

    discounting; risk-sensitive preferences ; environmental policy ; climate change ; catastrophic risks ; risk aversion;

    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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