Geophysicists examine and document the repercussions for the earth’s climate induced by alternative emission scenarios and model speciﬁcations. Using simpliﬁed approximations, they produce tractable characterizations of the associated uncertainty. Meanwhile, economists write simpliﬁed damage functions to assess uncertain feedbacks from climate change back to the economic opportunities for the macroeconomy. How can we assess both climate and emissions impacts, as well as uncertainty in the broadest sense, in social decision-making? We provide a framework for answering this question by embracing recent decision theory and tools from asset pricing, and we apply this structure with its interacting components in a revealing quantitative illustration.
August 2019 | Working Paper
Tags: Climate, Risk, Robustness and Ambiguity, Uncertainty and Valuation|