Building Uncertainty into the Adaptation Cost Estimation in Integrated Assessment Models

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dc.creatorMarkandya, Anil
dc.creatorDe Cian, Enrica
dc.creatorDrouet, Laurent
dc.creatorPolanco-Martìnez, Josué M.
dc.creatorBosello, Francesco
dc.date2017-04-01T19:51:46Z
dc.date.accessioned2026-07-09T10:17:45Z
dc.descriptionThis paper proposes an operationally simple and easily generalizable methodology to incorporate climate change damage uncertainty into Integrated Assessment Models (IAMs). Uncertainty is transformed into a risk-premium, damage-correction, region-specific factor by extracting damage distribution means and variances from an ensemble of socio economic and climate change scenarios. This risk premium quantifies what society would be willing to pay to insure against the uncertainty of the damages, and it can be considered an add-up to the standard “average damage”. Our computations show the addition to be significant, but highly sensitive to the coefficient of relative risk aversion. Once the climate change damage function incorporates the risk premium into the model, results show a substantial increase in both mitigation and adaptation, reflecting a more conservative attitude by the social planner. Interestingly, adaptation is stimulated more than mitigation in the first half of the century, while the situation reverses afterwards. Over the century, the risk premium correction fosters more mitigation, which doubles, than adaptation, which rises by about 80%.
dc.identifierdoi:10.22004/ag.econ.232719
dc.identifierhttps://ageconsearch.umn.edu/record/232719/files/NDL2016-021.pdf
dc.identifierhttp://ageconsearch.umn.edu/record/232719
dc.identifier.urihttp://hdl.handle.net/123456789/617329
dc.languageeng
dc.publisher
dc.sourcehttp://ageconsearch.umn.edu/record/232719
dc.titleBuilding Uncertainty into the Adaptation Cost Estimation in Integrated Assessment Models
dc.typeText

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