Preparing for catastrophic climate change

We study optimal adaptation to climate change when the harmful consequences of global warming are associated with stochastic occurrence of abrupt changes. The adaptation policy entails the accumulation of a particular sort of capital that will eliminate or reduce the catastrophic damage of an abrupt climate change when (and if) it occurs. The occurrence date is uncertain. The policy problem involves balancing the tradeoffs between the (certain) investment cost prior to occurrence and the benefit (in reduced damage) that will be realized after the (uncertain) occurrence date. For stationary economies the optimal adaptation capital converges to a steady state. For growing economies the optimal adaptation capital stock approaches the maximal economic level above which further accumulation is ineffective.


Issue Date:
2011
Publication Type:
Working or Discussion Paper
Record Identifier:
http://ageconsearch.umn.edu/record/117652
PURL Identifier:
http://purl.umn.edu/117652
Total Pages:
24
JEL Codes:
O13; Q54




 Record created 2017-04-01, last modified 2018-01-22

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