This FEEM Working Paper by A. Markandya, E. De Cian, L. Drouet, J. M. Polanco-Martìnez and F. Bosello proposes a methodology to calculate risk premium in case of climate change damage.
“In the presence of uncertainty about climate change damages, are people satisfied to be protected against the "average" outcomes? We show that in fact this is not the case. The presence of risk aversion increases the perceived damage above the average one. We quantify accordingly this "addition" and we re-analyse the decision to mitigate and to adapt in the light of this correction".
Suggested citation: Markandya, A., E. De Cian, L. Drouet, Josué M. Polanco-Martìnez, F. Bosello, (2016), 'Building Uncertainty into the Adaptation Cost Estimation in Integrated Assessment Models', Nota di Lavoro 21.2016, Milan, Italy: Fondazione Eni Enrico Mattei