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High impact, low probability? An empirical analysis of risk in the economics of climate change

Dietz, Simon (2009) High impact, low probability? An empirical analysis of risk in the economics of climate change. Centre for Climate Change Economics and Policy and Grantham Research Institute on Climate Change and the Environment, 9. Centre for Climate Change Economics and Policy and Grantham Research Institute on Climate Change and the Environment, London, UK.

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Abstract

To what extent does economic analysis of climate change depend on low-probability, high-impact events? This question has received a great deal of attention lately, with the contention increasingly made that climate damage could be so large that societal willingness to pay to avoid extreme outcomes should overwhelm other seemingly important assumptions, notably on time preference. This paper provides an empirical examination of some key theoretical points, using a probabilistic integrated assessment model. New, fat-tailed distributions are inputted for key parameters representing climate sensitivity and economic costs. It is found that welfare estimates do strongly depend on tail risks, but for a set of plausible assumptions time preference can still matter.

Item Type: Monograph (Working Paper)
Official URL: http://www2.lse.ac.uk/GranthamInstitute/Home.aspx
Additional Information: © 2009 The Author
Library of Congress subject classification: G Geography. Anthropology. Recreation > GE Environmental Sciences
J Political Science > JZ International relations
Journal of Economic Literature Classification System: Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate; Natural Disasters
Sets: Departments > Geography and Environment
Research centres and groups > Grantham Research Institute on Climate Change and the Environment
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 9
Date Deposited: 27 Jul 2011 12:25
URL: http://eprints.lse.ac.uk/37612/

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