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Uncertainty and Insurance in Endogenous Climate Change

  • Georg Müller-Fürstenberger
  • Ingmar Schumacher

We investigate the economic impact of stochastic endogenous extreme events and insurance in a growth model. Our analytical results and computational experiments show that i) transparency of the insurance sector is the decisive requisite for abatement activities, implying substantial policy opportunities; ii) we can fully characterize and quantify the impact of uncertainty on the social planner's decisions; iii) a decentralized economy will under-invest in abatement without adequate policy interventions; iv) precautionary beliefs on the frequency of extreme events lead to more sustainability; v) technical change does not change the ordering of the paths but leads to a more sustainable future; v) a social security system which prices insurance fairly is preferable to an insurance industry which provides insurance with an overhead.

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File URL: http://www.uni-trier.de/fileadmin/fb4/prof/VWL/EWF/Research_Papers/2009-02.pdf
File Function: First version, 2009
Download Restriction: no

Paper provided by University of Trier, Department of Economics in its series Research Papers in Economics with number 2009-02.

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Length: 29 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:trr:wpaper:200902
Contact details of provider: Postal: B IV, VWL, D-54286 Trier
Phone: +49 (0) 651 201-2739
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Web page: http://www.uni-trier.de/index.php?id=2118
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  1. Keller, Klaus & Bolker, Benjamin M. & Bradford, D.F.David F., 2004. "Uncertain climate thresholds and optimal economic growth," Journal of Environmental Economics and Management, Elsevier, vol. 48(1), pages 723-741, July.
  2. Sennewald, Ken & Wälde, Klaus, 2005. ""Ito's Lemma" and the Bellman equation for Poisson processes: An applied view," W.E.P. - Würzburg Economic Papers 58, University of Würzburg, Chair for Monetary Policy and International Economics.
  3. Gjerde, Jon & Grepperud, Sverre & Kverndokk, Snorre, 1999. "Optimal climate policy under the possibility of a catastrophe," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 289-317, August.
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