Managing Catastrophic Climate Risks Under Model Uncertainty Aversion

Berger, Loϊc; Emmerling, Johannes; Tavoni, Massimo

doi:10.1287/mnsc.2015.2365

Cited by 81 publications

(38 citation statements)

References 65 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The Beta distribution is exible enough to explore a wide range of scenarios and to genuinely account for fat-tailed climate risks (Ackerman et al, 2010;Weitzman, 2011;Pindyck, 2012). 30 The majority of studies accounting for climate catastrophes employ some variant of the DICE model (see also Gerst et al, 2010;Berger et al, 2016) where an arbitrary large output loss is identi ed as a catastrophe. To the contrary, our modeling e ort should be seen as an attempt at providing evidence of how large shocks at the individual level might impact on aggregate dynamics, outside optimal growth paths.…”

Section: Climate and Economy Co-evolutionmentioning

confidence: 99%

Faraway, So Close: Coupled Climate and Economic Dynamics in an Agent-Based Integrated Assessment Model

et al. 2017

View full text Add to dashboard Cite

In this paperwe develop the first agent-based integrated assessment model, which offers an alternative to standard, computable general-equilibrium frameworks. The Dystopian Schumpeter meeting Keynes (DSK) model is composed of heterogeneous firms belonging to capital-good, consumption-good and energy sectors. Production and energy generation lead to greenhouse gas emissions, which affect temperature dynamics in a non-linear way. Increasing temperature triggers climate damages hitting, at the micro-level, workers' labor productivity, energy efficiency, capital stock and inventories of firms. In that, aggregate damages are emerging properties of the out-of-equilibrium interactions among heterogeneous and boundedly rational agents. We find the DSK model is able to account for a wide ensemble of micro and macro empirical regularities concerning both economic and climate dynamics. Moreover, different types of shocks have heterogeneous impact on output growth, unemployment rate, and the likelihood of economic crises. Finally, we show that the magnitude and the uncertainty associated to climate change impacts increase over time, and that climate damages much larger than those estimated through standard IAMs. Our results point to the presence of tipping points and irreversible trajectories, thereby suggesting the need of urgent policy interventions.

show abstract

Section: Climate and Economy Co-evolutionmentioning

confidence: 99%

Faraway, So Close: Coupled Climate and Economic Dynamics in an Agent-Based Integrated Assessment Model

et al. 2017

View full text Add to dashboard Cite

show abstract

“…We conducted both 32 In this case, the result could have been obtained directly from the twofold CRRA estimation results provided in online Appendix ? ?, given that φ is of the CRAA type with r φ = rv −ru 1−ru , when both u and v are CRRA (Berger et al, 2016). a laboratory experiment with students, and a field experiment with policy makers, and use non-parametric statistics as well as structural econometrics to analyze choice patterns.…”

Section: Resultsmentioning

confidence: 99%

“…It is for example implicitly assumed in the models by Gilboa and Schmeidler (1989); Hansen and Sargent (2001); Maccheroni et al (2006). On the contrary, decreasing absolute ambiguity aversion (DAAA) is a condition that has been shown to play an important role in the determination of the precautionary saving motive under ambiguity (Gierlinger and Gollier, 2008;Berger, 2014), in the chances of survival of ambiguity averse investors (Guerdjikova and Sciubba, 2015), or in the choice of optimal abatement policies under scientific model uncertainty (Berger et al, 2016).…”

Section: Hypothesismentioning

confidence: 99%

See 1 more Smart Citation

Ellsberg Re-Revisited: An Experiment Disentangling Model Uncertainty and Risk Aversion

Berger

Bosetti

2016

SSRN Journal

View full text Add to dashboard Cite

The results of an experiment extending Ellsberg's setup demonstrate that attitudes towards ambiguity and compound uncertainty are closely related. However, this association is much stronger when the second layer of uncertainty is subjective than when it is objective. Provided that the compound probabilities are simple enough, we find that most subjects, consisting of both students and policy makers, (1) reduce compound objective probabilities, (2) do not reduce compound subjective probabilities, and (3) are ambiguity non-neutral. By decomposing ambiguity into risk and model uncertainty, and jointly eliciting the attitudes individuals manifest towards these two types of uncertainty, we characterize individuals' degree of ambiguity aversion. Our data provides evidence of decreasing absolute ambiguity aversion and constant relative ambiguity aversion.

show abstract

“…The second issue concerns the robustification of modelling results by understanding, assessing, and reducing uncertainties and the associated noise of socioeconomic and concentration trajectories (e.g., [41]), which is key to energy and climate policy [42]. In this respect, portfolio theory and regret analysis approaches, integrated with stochastic uncertainty treatment components, already hold a fine record of integration with IAMs.…”

Section: Removing Noisementioning

confidence: 99%

From Integrated to Integrative: Delivering on the Paris Agreement

et al. 2018

View full text Add to dashboard Cite

Abstract:In pursuit of the drastic transformations necessary for effectively responding to climate change, the Paris Agreement stresses the need to design and implement sustainable, robust, and socially acceptable policy pathways in a globally coordinated and cooperative manner. For decades, the scientific community has been carrying out quantitative modelling exercises in support of climate policy design, primarily by means of energy systems and integrated assessment modelling frameworks. Here, we describe in detail the context of a hitherto ineffective scientific contribution to policymaking, highlight the available means to formulate a new paradigm that overcomes existing and emerging challenges, and ultimately call for change. In particular, we argue that individual modelling exercises alone widen the gap between formal representation and real-life context in which decisions are taken, and investigate major criticisms to which formalised modelling frameworks are subject. We essentially highlight the importance of employing diverse modelling ensembles, placing the human factor at the core of all modelling processes, and enhancing the robustness of model-driven policy prescriptions through decision support systems. These altogether compose a truly integrative approach to supporting the design of effective climate policy and sustainable transitions and, therefore, strengthen the modelling-policymaking interface.

show abstract

Managing Catastrophic Climate Risks Under Model Uncertainty Aversion

Cited by 81 publications

References 65 publications

Faraway, So Close: Coupled Climate and Economic Dynamics in an Agent-Based Integrated Assessment Model

Faraway, So Close: Coupled Climate and Economic Dynamics in an Agent-Based Integrated Assessment Model

Ellsberg Re-Revisited: An Experiment Disentangling Model Uncertainty and Risk Aversion

From Integrated to Integrative: Delivering on the Paris Agreement

Contact Info

Product

Resources

About