FEEM working papers "Note di lavoro" series
2016 .021

Building Uncertainty into the Adaptation Cost Estimation in Integrated Assessment Models


Authors: Anil Markandya, Enrica De Cian, Laurent Drouet, Josué M. Polanco-Martìnez, Francesco Bosello
Series: Climate Change: Economic Impacts and Adaptation
Editor: Francesco Bosello
Keywords: Risk, Uncertainty, Climate, Adaptation, Mitigation
JEL n.: Q2, Q3, D8, D9, D62

Abstract

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".

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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

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