Uncertainty and Climate Change

  • Geoffrey Heal
  • Bengt Kriström

Abstract

Uncertainty is pervasive in analysis of climatechange. How should economists allow for this? And how have they allowed for it? This paperreviews both of these questions.

climate change risk uncertainty 

References

  1. Acemoglu, D., S. Johnson and J. A. Robinson (2001), ‘The Colonial Origins of Comparative Development: An Empirical Investigation’, American Economic Review 91(5), 1369–1401.CrossRefGoogle Scholar
  2. Arrow, K. J. (1995), ‘Intergenerational Equity and the Rate of Discount in Long-Term Social Investment’, IEA World Congress, December 1995. Stanford, Department of Economics, Working Paper 97-005. http://www-econ.stanford.edu/faculty/workp/swp97005.html.Google Scholar
  3. Arrow, K. J. and A. C. Fisher (1974), ‘Environmental Preservation, Uncertainty and Irreversibility’, Quarterly Journal of Economics 88(2), 312–319.CrossRefGoogle Scholar
  4. Arrow, K. J. and M. Kurz (1970), Public Investment, the Rate of Return, and Optimal Fiscal Policy. Published by the Johns Hopkins Press for Resources for the Future Inc.Google Scholar
  5. Arrow, K. J. and R. C. Lind (1970), ‘Uncertainty and the Evaluation of Public Investment Decisions’, American Economic Review 60(3), 364–378.Google Scholar
  6. Ayong Le Kama, A. D. and K. Schubert, ‘Growth, Environment and Uncertain Future Preferences’, Working Paper, EUREQua, Université de Paris I.Google Scholar
  7. Backlund, K., B. Kriström, K.-G. Löfgren and E. Samakovlis (2000), ‘Global Warming and Dynamic Cost-Benefit Analysis Under Uncertainty: An Economic Analysis of Forest Sequestration Options’, Working Paper, Department of Forest Economics, SLU-Umeå.Google Scholar
  8. Beltratti, A., G. Chichilnisky and G. M. Heal (1998), ‘Uncertain Future Preferences and Conservation’, in G. Chichilnisky, G. M. Heal and A. Vercelli, eds., Sustainability: Dynamics and Uncertainty. Dordrecht: Kluwer.Google Scholar
  9. Brasão, A. and M. Cunha-e-Sá (1998), ‘Optimal Growth, Uncertain Future Preferences and Preservation’, Universidade Nova de Lisboa, Faculdada de Economia. Paper Presented at the First World Congress, EARE/EAERE, Venice, June 25–27.Google Scholar
  10. Carpenter, S. R., D. Ludwig and W. A. Brock (1999), ‘Management of Eutrophication for Lakes Subject to Potentially Irreversible Change’, Ecological Applications 9(3), 751–771.CrossRefGoogle Scholar
  11. Chichilnisky, G. and G. M. Heal (1993), ‘Global Environmental Risks’, Journal of Economic Perspectives 7(4), 65–86.Google Scholar
  12. Chichilnisky, G. and G. M. Heal (1998), ‘Catastrophe Futures: Financial Markets for Unknown Risks’, in G. Chichilnisky, G. M. Heal and A. Vercelli, eds., Sustainability: Dynamics and Uncertainty. Dordrecht: Kluwer.Google Scholar
  13. Cline, W. (1992), The Economics of Global Warming. The Institute for International Economics (www.iie.com).Google Scholar
  14. Crocker, T. D. and J. F. Shogren (forthcoming), ‘Choosing Environmental Risk’, in H. Folmer and T. Tietenberg, eds., The International Yearbook of Environmental and Resource Economics. Cheltenham, UK: Edgar Elgar.Google Scholar
  15. Cropper, M. L. (1976), ‘Regulating Activities with Catastrophic Environmental Effects’, Journal of Environmental Economics and Management 4(1), 1–15.CrossRefGoogle Scholar
  16. Daily, G. (1997), Nature's Services: Societal Dependence on Natural Ecosystems. Washington, D.C.: Island Press.Google Scholar
  17. Dasgupta, P. (1982), The Control of Resources. Oxford: Basil Blackwell.Google Scholar
  18. Dasgupta, P. and G.M. Heal (1974), ‘The Optimal Depletion of Exhaustible Resources’, Symposium, Review of Economic Studies, 3–28.Google Scholar
  19. Epstein, L. G. (1980), ‘Decision Making and the Temporal Resolution of Uncertainty’, International Economic Review 21(2), 269–283.CrossRefGoogle Scholar
  20. Fisher, A. C. and U. Narain (2002), ‘GlobalWarming, Endogenous Risk and Irreversibility’, Working Paper, Department of Agricultural and Resource Economics, UC Berkeley.Google Scholar
  21. Freixas, X. and J. J. Laffont (1984), ‘On the Irreversibility Effect’, in M. Boyer and R. Kihlstrom, eds., Bayesian Models in Economic Theory. Dordrecht: Elsevier.Google Scholar
  22. Gavin, M. and R. Hausman (1998), ‘Nature, Development and Distribution in Latin America: Evidence on the Role of Geography, Climate and Natural Resources’, IADB, Inter-American Development Bank. August, IADB, Research Department Working Paper No. 378.Google Scholar
  23. Gallup, J. L., J. D. Sachs and A. D. Mellinger (1998), NBER Working Paper No. W6849.Google Scholar
  24. Gollier, C., B. Jullien and N. Treich (2000), ‘Scientific Progress and Irreversibility: an Economic Interpretation of the “Precautionary Principle”’ Journal of Public Economics 75, 229–253.CrossRefGoogle Scholar
  25. Heal, G. M. (1984), ‘Interaction Between Economy and Climate: A Framework for Policy Design Uncertainty’, in V. K. Smith and A. D. White, eds., Advances in Applied Microeconomics, Vol 2. JAI Press.Google Scholar
  26. Heal, G. M. (1995), ‘Equilibrium with Derivatives: Price Contingent Securities and Resource Allocation’, Columbia Business School Working Paper.Google Scholar
  27. Heal, G. M. (1998), Valuing the Future: Economic Theory and Sustainability. New York: Columbia University Press.Google Scholar
  28. Henry, C. (1974a), ‘Option Values in the Economics of Irreplaceable Assets’, Review of Economic Studies. Symposium on the Economics of Exhaustible Resources, 89–104.Google Scholar
  29. Henry, C. (1974b), ‘Investment Decisions under Uncertainty: the Irreversibility Effect’, American Economic Review 64(6), 1005–1012.Google Scholar
  30. Henry, C. and M. Henry (2000), ‘Formalization and Applications of the Precautionary Principle’, Working Paper, Laboratoire d'Econometrie, Ecole Polytechnique, France.Google Scholar
  31. Horowitz, J. K. (2001), ‘The Income-Temperature Relationship in a Cross-Section of Countries and its Implications for Global Warming’, University of Maryland, February 14, U of Maryland Working Paper No. 01-02.Google Scholar
  32. Intergovernmental Panel on Climate Change (IPCC), http://www.ipcc.ch/pub/wg1TARtechsum.pdf.Google Scholar
  33. Kane, S. and J. Shogren (2000), ‘Linking Adaption and Mitigation in Climate Change Policy’, Climate Change 45(1), 75–101.CrossRefGoogle Scholar
  34. Keith, W. D., ‘Geoengineering the Climate: History and Prospect’, Annual Reviews of Energy and the Environment 25(1), 245–284.Google Scholar
  35. Keller, K., K. Tan, M. M. F. Morel and D. F. Bradford (2000), ‘Preserving the Ocean Circulation: Implications for Climate Policy’, Climatic Change 47(1–2), 17–42.CrossRefGoogle Scholar
  36. Kelly, D. and C. D. Kolstad (2001), ‘Malthus and Climate Change: Betting on a Stable Population’, Journal of Environmental Economics and Management 41(1), 135–161.CrossRefGoogle Scholar
  37. Kimball, M. S. (1990), ‘Precautionary Saving in the Small and in the Large’, Econometrica 58(1), 53–73.CrossRefGoogle Scholar
  38. Klimpel, S. and T. Requate (2000), ‘Financial Markets for Unknown Risks if Beliefs Differ’, Geneva Papers of Risk and Insurance Theory 25(1), 29–49.CrossRefGoogle Scholar
  39. Kolstad, C. D. (1996a), ‘Fundamental Irreversibilities in Stock Externalities’, Journal of Public Economics 60(2), 221–233.CrossRefGoogle Scholar
  40. Kolstad, C. D. (1996b), ‘Learning and Stock effects in Environmental Regulation: The Case of Greenhouse Gas Emissions’, Journal of Environmental Economics and Management 31(1), 1–18.CrossRefGoogle Scholar
  41. Lackner, K., P. Grimes and H.-J. Ziock (1999), ‘Carbon Dioxide Extraction from the Air?’ Working Paper, Los Alamos National Laboratory.Google Scholar
  42. Landes, D. (1998), The Wealth and Poverty of Nations. New York: W.W. Norton.Google Scholar
  43. Lise, W. and R. S. J. Toll (2001), ‘Impact of Climate on Tourist Demand’, Vrije Universiteit Amsterdam (Free University), FEEMWorking Paper, No. 48.Google Scholar
  44. Maddison, D. and A. Bigano (2000), ‘The Amenity Value of The Italian Climate’, Working Paper, Centre for Social and Economic Research on the Global Environment, University College London and University of East Anglia, http://www.cserge.ucl.ac.uk/publications.html.Google Scholar
  45. Malinvaud, E. (1969), ‘First Order Certainty Equivalence’, Econometrica 37(4), 706–718.CrossRefGoogle Scholar
  46. Malinvaud, E. (1972), ‘The Allocation of Individual Risks in Large Markets’, Journal of Economic Theory 4(2), 312–328.CrossRefGoogle Scholar
  47. Malinvaud, E. (1973), ‘Markets for an Exchange Economy with Individual Risks’, Econometrica 41(3), 383–409.CrossRefGoogle Scholar
  48. Manne, A. S. and R. G. Richels (1993), Buying Greenhouse Insurance: The Economic Costs of Co 2 Emission Limits. Cambridge: MIT Press.Google Scholar
  49. Mason, B. J. (1995), ‘Predictions of Climate Changes Caused by Man-Made Emissions of Greenhouse Gases’, Contemporary Physics 36(5), 299–319.Google Scholar
  50. Nordhaus, W. D. (1994), Managing the Global Commons: The Economics of Climate Change. Cambridge, MA: MIT Press.Google Scholar
  51. Nordhaus, W. D. and J. Boyer (2000), Warming the World: Economic Models of Global Warming. Cambridge, MA: MIT Press.Google Scholar
  52. Oi, W. (1995), ‘Safety at What Price?’, American Economic Review 85(2), 67–71.Google Scholar
  53. Pindyck, R. S. (2000), ‘Irreversibilities and the Timing of Environmental Policy’, Resource and Energy Economics 22(3), 233–260.CrossRefGoogle Scholar
  54. Pizer, W. A. (1998), ‘Optimal Choice of Policy Instrument and Stringency under Uncertainty: The Case of Climate Change’, Discussion Paper, RFF, August.Google Scholar
  55. Roughgarden, T. and S. H. Schneider (1999), ‘Climate Change Policy: Quantifying Uncertainties for Damages and Optimal Carbon Taxes’, Energy Policy 27, 415–429.CrossRefGoogle Scholar
  56. Ramsey, F. P. (1928), ‘A Mathematical Theory of Saving’, Economic Journal 38(152), 543–559.CrossRefGoogle Scholar
  57. Ramsey, F. P. (1931), ‘Epilogue’, in R. B. Braithwaite, ed., The Foundations of Mathematics and Other Logical Essay. London: Routledge and Kegan Paul. As quoted by Arrow (1995).Google Scholar
  58. Toman, M. A. (2001), ‘Economic Analysis and the Formulation of US Climate Policy’, Resources for the Future Discussion Paper.Google Scholar
  59. Torvanger, A. (1997), ‘Uncertain Climate Change in an Intergenerational Model’, Environmental and Resource Economics 9(1), 103–124.Google Scholar
  60. Ulph, A. and D. Ulph (1997), ‘Global Warming, Irreversibility and Learning’, Economic Journal 107(442), 636–650.CrossRefGoogle Scholar
  61. Weitzman, M. L. (1974), ‘Prices vs. Quantities’, Review of Economic Studies 41(4), 477–491.CrossRefGoogle Scholar
  62. Weitzman, M. L. (1998), ‘Gamma Discounting’, Paper presented at the 1998 Summer Environmental Meetings of the NBER. See also M. L. Weitzman (1998), ‘Discounting the Far Distant Future’, Journal of Environmental Economics and Management (November) 36 (3), 201–208.Google Scholar
  63. Wildavsky A. (1988), Searching for Safety. Transaction Publishers, New Brunswick, NJ. As quoted by Oi (1995).Google Scholar

Copyright information

© Kluwer Academic Publishers 2002

Authors and Affiliations

  • Geoffrey Heal
    • 1
  • Bengt Kriström
    • 2
  1. 1.Columbia Business SchoolNew YorkUSA
  2. 2.SLU-UmeåUmeåSweden

Personalised recommendations