TY - JOUR
T1 - Embedding Preference Uncertainty for Environmental Amenities in Climate Change Economic Assessments: A “Random” Step Forward
AU - Skourtos, Michalis
AU - Damigos, Dimitris
AU - Kontogianni, Areti
AU - Tourkolias, Christos
AU - Hunt, Alistair
PY - 2019/12/31
Y1 - 2019/12/31
N2 - While there is a considerable debate regarding the choice of proper discount rates for assessing climate change projects and policies, only a tiny body of literature emphasizes “what to discount”. Usually, climate change economic assessments rely on tools and methods that employ strong simplifications, assuming, among others, given and fixed preferences about the values of man-made and environmental goods. Aiming to fill a gap in the literature, this paper leaves aside the issue of discounting and focuses on the nature and impact of preference uncertainty on the economic estimates of future climate change damages on ecosystem non-market goods and services. To this end, a general random walk-based stochastic model is proposed, combining a number of parameters, e.g., the growth of income, depletion of environmental assets, the elasticity of income and demand, and the change in preferences towards the environment. The illustrative application of the model shows that the value of environmental losses is significantly affected by the change in preferences. By doing so, the model allows the analyst to visualize future paths of preference evolutions and to bring future values of damaged environmental assets realistically to the fore. If these elements are neglected when estimating climate change-related future damages to environmental goods and services, the results may be too narrow from a policy perspective
AB - While there is a considerable debate regarding the choice of proper discount rates for assessing climate change projects and policies, only a tiny body of literature emphasizes “what to discount”. Usually, climate change economic assessments rely on tools and methods that employ strong simplifications, assuming, among others, given and fixed preferences about the values of man-made and environmental goods. Aiming to fill a gap in the literature, this paper leaves aside the issue of discounting and focuses on the nature and impact of preference uncertainty on the economic estimates of future climate change damages on ecosystem non-market goods and services. To this end, a general random walk-based stochastic model is proposed, combining a number of parameters, e.g., the growth of income, depletion of environmental assets, the elasticity of income and demand, and the change in preferences towards the environment. The illustrative application of the model shows that the value of environmental losses is significantly affected by the change in preferences. By doing so, the model allows the analyst to visualize future paths of preference evolutions and to bring future values of damaged environmental assets realistically to the fore. If these elements are neglected when estimating climate change-related future damages to environmental goods and services, the results may be too narrow from a policy perspective
U2 - 10.3390/economies7040107
DO - 10.3390/economies7040107
M3 - Article
SN - 2227-7099
VL - 7
SP - 1
EP - 22
JO - Economies
JF - Economies
IS - 107
M1 - 107
ER -