Bounded uncertainty and climate change economics.
It has been argued recently that the combination of risk aversion and an uncertainty distribution of future temperature change with a heavy upper tail invalidates mainstream economic analyses of climate change policy. A simple model is used to explore the effect of imposing an upper bound on future temperature change. The analysis shows that imposing even a high bound reverses the earlier argument and that the optimal policy, as measured by the willingness to pay to avoid climate change, is relatively insensitive to this bound over a wide range.
Costello
Christopher J
CJ
Donald Bren School of Environmental Science and Management, University of California, Santa Barbara, CA 93106, USA.
Neubert
Michael G
MG
Polasky
Stephen A
SA
Solow
Andrew R
AR
D057231:Climate Change / Q000191:economics*; D035501:Uncertainty
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