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Ambiguity and the economic rhetoric of climate change

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Chambers, Robert G. and Melkonyan, Tigran A. (2017) Ambiguity and the economic rhetoric of climate change. Journal of Environmental Economics and Management, 81 . pp. 74-92. doi:10.1016/j.jeem.2016.09.007

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Official URL: http://dx.doi.org/10.1016/j.jeem.2016.09.007

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Abstract

This paper examines climate-change benefit-cost analysis in the presence of scientific uncertainty in the form of ambiguity. The specific issue addressed is the robustness of benefit-cost analyses of climate-change policy alternatives to relaxation of Savage's original axioms. Two alternatives to subjective expected utility (SEU) are considered: maximin expected utility (MEU) and incomplete expected utility (IEU). Among other results, it is demonstrated that polar opposite recommendations can emerge in an ambiguous decision setting even if all agree on Society's rate of time preference, Society's risk attitudes, the degree of ambiguity faced, and the scientific primitives. We show that, for a simple numerical simulation of our model, an MEU decision maker favors policies which immediately tackle climate change while an IEU decision prefers "business as usual".

Item Type: Journal Article
Subjects: H Social Sciences > HC Economic History and Conditions
Divisions: Faculty of Social Sciences > Warwick Business School > Behavioural Science
Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH): Climatic changes -- Economic aspects -- Mathematical models, Climate change mitigation -- Cost effectiveness, Intergovernmental Panel on Climate Change -- Influence, Environmental policy
Journal or Publication Title: Journal of Environmental Economics and Management
Publisher: Elsevier
ISSN: 0095-0696
Official Date: 1 January 2017
Dates:
DateEvent
1 January 2017Published
22 September 2016Available
12 August 2016Accepted
17 December 2015Submitted
Volume: 81
Page Range: pp. 74-92
DOI: 10.1016/j.jeem.2016.09.007
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Restricted or Subscription Access

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