The impact of geoscientific and economic uncertainty of climate change on market and social valuation

Lars Peter Hansen

introduced by Massimo Marinacci

Geophysicists examine and document the repercussions for the earth’s climate induced by alternative emission scenarios and model specifications. Using simplified approximations, they produce tractable characterizations of the associated uncertainty. Meanwhile, economists write simplified damage functions to assess uncertain feedbacks from climate change back to the economic opportunities for the macroeconomy. How can we assess both climate and emissions impacts, as well as uncertainty in the broadest sense, in social decision-making? Decision theory and tools from asset pricing are very valuable in answering such a question.

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