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Towards Impact Functions for Stochastic Climate Change

Author

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  • Richard S.J. Tol

    () (Department of Economics, University of Sussex
    Institute for Environmental Studies, Vrije Universiteit, Amsterdam, The Netherlands
    Department of Spatial Economics, Vrije Universiteit, Amsterdam, The Netherlands
    Tinbergen Institute, Amsterdam, The Netherlands)

  • Francisco Estrada

    (Institute for Environmental Studies, Vrije Universiteit, Amsterdam, The Netherlands
    Centro de Ciencias de la Atmósfera, Universidad Nacional Autónoma de México, Mexico)

Abstract

Most functions of economic impact assume that climate change is smooth. We here propose impact functions that have stochastic climate change as an input. These functions are identical in shape and have similar parameters as do deterministic impact functions. The mean stochastic impacts are thus similar to deterministic impacts. Welfare effects are larger, and the stochasticity premium is larger than the risk premium. Stochasticity is more important for past impacts than for future impacts.

Suggested Citation

  • Richard S.J. Tol & Francisco Estrada, 2013. "Towards Impact Functions for Stochastic Climate Change," Working Paper Series 6113, Department of Economics, University of Sussex Business School.
  • Handle: RePEc:sus:susewp:6113
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    File URL: http://www.sussex.ac.uk/economics/documents/wps-61-2013.pdf
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    References listed on IDEAS

    as
    1. Richard S.J. Tol & Francisco Estrada, 2013. "Estimating the Global Impacts of Climate Variability and Change During the 20th Century," Working Paper Series 6213, Department of Economics, University of Sussex Business School.
    2. Dalton, Michael G., 1997. "The Welfare Bias from Omitting Climatic Variability in Economic Studies of Global Warming," Journal of Environmental Economics and Management, Elsevier, vol. 33(3), pages 221-239, July.
    3. Richard S. J. Tol, 2009. "The Economic Effects of Climate Change," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 29-51, Spring.
    4. Richard Tol, 2012. "On the Uncertainty About the Total Economic Impact of Climate Change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 53(1), pages 97-116, September.
    5. Richard Tol, 2013. "The economic impact of climate change in the 20th and 21st centuries," Climatic Change, Springer, vol. 117(4), pages 795-808, April.
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    Cited by:

    1. David Anthoff & Francisco Estrada & Richard S. J. Tol, 2016. "Shutting Down the Thermohaline Circulation," American Economic Review, American Economic Association, vol. 106(5), pages 602-606, May.
    2. David Anthoff & Francisco Estrada & Richard S. J. Tol, 2016. "Shutting Down the Thermohaline Circulation," American Economic Review, American Economic Association, vol. 106(5), pages 602-06, May.

    More about this item

    Keywords

    economic impact of climate change; stochasticity; risk premium;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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