Wrestling with Uncertainty in Climate Economic Models
71 Pages Posted: 27 Jul 2017 Last revised: 22 May 2019
Date Written: October 15, 2018
Abstract
This paper uses insights from decision theory under uncertainty to explore research challenges in climate economics. We embrace a broad perspective of uncertainty with three components: risk (probabilities assigned by a given model), ambiguity (level of confidence in alternative models), and misspecification (potential shortfalls in existing models). We survey recent climate science research that exposes the uncertainty in climate dynamics that is pertinent in economic analyses and relevant for using models to provide policy guidance. The uncertainty components and their implications for decision theory help us frame this evidence and expose the modeling and evidential challenges.
JEL Classification: G12, O44, Q51, Q54
Suggested Citation: Suggested Citation