Research Publication

May 2022 | Article

Newly published research in the University of Chicago Press for the National Bureau of Economic Research: “Climate Change Uncertainty Spillover in the Macroeconomy”

Michael Barnett, William Brock, and Lars Peter Hansen

Abstract

The design and conduct of climate change policy necessarily confronts uncertainty along multiple fronts. We explore the consequences of ambiguity over various sources and configurations of models that impact how economic opportunities could be damaged in the future. We appeal to decision theory under risk, model ambiguity and misspecification concerns to provide an economically motivated approach to uncertainty quantification. We show how this approach reduces the many facets of uncertainty into a low dimensional characterization that depends on the uncertainty aversion of a decision-maker or fictitious social planner. In our computations, we take inventory of three alternative channels of uncertainty and provide a novel way to assess them. These include i) carbon dynamics that capture how carbon emissions impact atmospheric carbon in future time periods; ii) temperature dynamics that depict how atmospheric carbon alters temperature in future time periods; iii) damage functions that quantify how temperature changes diminish economic opportunities. We appeal to geoscientific modeling to quantify the first two channels. We show how these uncertainty sources interact for a social planner looking to design a prudent approach to the social pricing of carbon emissions.

View on the NBER Macroeconomics Annual РThe University of Chicago Press Journal Website 

Journal: The University of Chicago Press for the National Bureau of Economic Research|Volume: 36|Tags: Climate, Uncertainty|Export BibTeX >
@article{barnett2021climate,
  title={Climate Change Uncertainty Spillover in the Macroeconomy},
  author={Barnett, Michael and Brock, William and Hansen, Lars Peter},
  journal={Prepared for the 2021 Macoreconomics Annual},
  year={2021}
}