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How Do Long‐Shot Outcomes Affect Preferences for Climate‐Change Mitigation?
Author(s) -
Riddel Mary
Publication year - 2014
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.4284/0038-4038-2011.231
Subject(s) - willingness to pay , climate change , skew , affect (linguistics) , economics , distribution (mathematics) , risk aversion (psychology) , climate change mitigation , natural resource economics , econometrics , public economics , actuarial science , expected utility hypothesis , microeconomics , psychology , computer science , mathematics , financial economics , ecology , telecommunications , mathematical analysis , communication , biology
This article takes a fresh look at how public uncertainty influences willingness to pay (WTP) for climate‐change mitigation programs. I elicit subjective distribution functions over future global mean temperatures and WTP for mitigation. I find, not surprisingly, that subjects, on average, view climate change as a “bad,” and the higher the expected temperature increase they perceive, the more they are willing to pay for mitigation. Subjects are generally risk averse, so that they are WTP more for mitigation programs when the outcome of the program is more certain. The skew of the subjective climate‐change distribution also affects preferences, so that aversion to catastrophic outcomes is an important component of WTP for mitigation. I find that models that ignore skew are likely to underestimate the influence of uncertainty on willingness to pay for climate‐change mitigation.