Towards impact functions for stochastic climate change

Estrada, Francisco and Tol, Richard S J (2015) Towards impact functions for stochastic climate change. Climate Change Economics, 6 (4). ISSN 2010-0078

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Abstract

Most functions of economic impact assume that climate change is smooth. We here propose impact functions that have stochastic climate change as an input. These functions are identical in shape and have similar parameters as do deterministic impact functions. The mean stochastic impacts are thus similar to deterministic impacts. Welfare effects are larger, and the stochasticity premium is larger than the risk premium. Results suggest that stochasticity is more important for past impacts than for future impacts. This outcome is partly caused by an underestimation of natural variability in the 21st century climate projections.

Item Type: Article
Schools and Departments: School of Business, Management and Economics > Economics
Subjects: H Social Sciences > HB Economic theory. Demography
Depositing User: Richard Tol
Date Deposited: 01 Apr 2016 08:22
Last Modified: 01 Apr 2016 08:22
URI: http://sro.sussex.ac.uk/id/eprint/59856
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