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Risk‐Averse Mitigation Decisions in an Unpredictable Climate System *
Author(s) -
Lontzek Thomas S.,
Narita Daiju
Publication year - 2011
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/j.1467-9442.2011.01679.x
Subject(s) - risk aversion (psychology) , climate change , economics , sign (mathematics) , face (sociological concept) , econometrics , microeconomics , expected utility hypothesis , mathematical economics , mathematics , ecology , mathematical analysis , social science , sociology , biology
Risk aversion plays a central role in the decisions made in the face of uncertainties, and climate‐change mitigation should be no exception. However, the interlinkage of risk aversion and climate‐change uncertainties has hardly been investigated numerically, in part because of the computational difficulties of stochastic optimization. In this paper, we apply the numerical techniques of stochastic optimization to the economic modeling of climate change, with the aim of modeling the decision preferences of a risk‐conscious agent in the face of unpredictable climate change. The model underlines the critical role played by the risk‐aversion parameter in determining the effects of uncertainties on mitigation, not only in level but also in sign.