Working Paper: NBER ID: w18929
Authors: Geoffrey Heal; Antony Millner
Abstract: Uncertainty is intrinsic to climate change: we know that the climate is changing, but not precisely how fast or in what ways. Nor do we understand fully the social and economic consequences of these changes, or the options that will be available for reducing climate change. Furthermore the uncertainty about these issues is not readily quantified and expressed in probabilistic terms: we are facing deep uncertainty or ambiguity rather than risk in the classical sense, rendering the classical expected utility framework of limited value. We review the sources of uncertainty about all aspects of climate change and resolve these into various components, commenting on their relative importance. Then we review decision-making frameworks that are appropriate in the absence of quantitative probabilistic information, including non-probabilistic approaches and those based on multiple priors, and discuss their application in climate change economics.
Keywords: climate change; uncertainty; expected utility; multiple priors
JEL Codes: D81; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Scientific uncertainty (D89) | Policy decisions related to climate change (Q58) |
| Initial condition uncertainty (D89) | Scientific uncertainty (D89) |
| Model uncertainty (D81) | Scientific uncertainty (D89) |
| Emissions scenario uncertainty (Q47) | Scientific uncertainty (D89) |
| Socioeconomic uncertainties (D89) | Decision-making framework (D70) |
| Scientific uncertainty (D89) | Socioeconomic outcomes (I24) |