Kiel Working Papers, Kiel Institute for World Economics
No 1593:
Climate change mitigation and ecosystem services : A stochastic analysis
Thomas S. Lontzek and Daiju Narita
Abstract: Degradation of ecosystem services may be a major component
of climate change damage, and incorporation of this factor could
significantly alter the significance of uncertainty in climate-economy
modeling. However, this aspect has been little investigated by economic
analyses of climate change and uncertainty. We apply standardized numerical
techniques of stochastic optimization to this research question. The model
results show that the effects of uncertainty are different with different
levels of agent’s risk aversion. Also, uncertainty exhibits different
effects on mitigation policy and capital investment according to the
availability of ecosystem services. Importantly, both the risk aversion and
the availability of ecosystem services can change the effects of
uncertainty on mitigation not only in level but also in sign. In other
words, mitigation could both increase and decrease with climatic
uncertainty. The model would provide hints for policymaking in finding a
balance between economic growth, climate protection, and the conservation
of ecosystems
Keywords: climate change, decision making under uncertainty, stochastic control, renewable resource, ecosystem services; (follow links to similar papers)
JEL-Codes: C63,; Q54,; D81; (follow links to similar papers)
22 pages, January 2010
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