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Uncertainty and Insurance in Endogenous Climate Change

Author

Listed:
  • Georg Müller-Fürstenberger
  • Ingmar Schumacher

Abstract

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.

Suggested Citation

  • Georg Müller-Fürstenberger & Ingmar Schumacher, 2009. "Uncertainty and Insurance in Endogenous Climate Change," Research Papers in Economics 2009-02, University of Trier, Department of Economics.
    • Handle: RePEc:trr:wpaper:200902
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    File URL: http://www.uni-trier.de/fileadmin/fb4/prof/VWL/EWF/Research_Papers/2009-02.pdf
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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