I am very happy to announce that my article entitled “Climate Policy Must Favor Mitigation Over Adaptation” is forthcoming in the journal Environmental & Resource Economics. The main message is the following:

Read More

In the paper “Climate Policy Must Favour Mitigation Over Adaptation”, I develop the argument that the world must prefer mitigation to adaptation at the global level. The argument rests on the observation that mitigation is a public good while adaptation is a private one. I have the feeling that the academic literature has completely missed this point, and especially the representative agent literature, but also integrated assessment models that introduce adaptation and mitigation.

Read on for more details, why I have trouble to get this published in a journal, the referees’ comments and my rebuffals.

Read More

In a recent piece entitled “Our Climate Future Is Actually Our Climate Present” (April 19, 2017) the New York Times discusses what Benteng Zou and myself in an article published in the Journal of Environmental Economics and Management in 2008 called Pollution Perception. We argued that individuals perceive pollution to differ from its actual level because ” consecutive generations are not truly aware of, or cannot fully relate to, the environment as it was a generation ago.” We argued that this not only leads to higher levels of pollution and lower welfare, but also that it poses problems for the most commonly used measures of intergenerational equity.

Interestingly, a psychologist had already defined this concept earlier than us, and we were unfortunately not aware of this. This shows how little interaction there is among different academic disciplines sometimes. Peter Kahn, a Psychology Professor from Washington, called this “environmental generational amnesia.”

What the NYtimes article emphasized was that “”it’s possible to adapt and diminish the quality of human life.” Adapting to avoid or cope with the suffering wrought by climate change might gradually create other suffering.” This is quite interesting and a valid point that we did not study. For example, increased carbon emissions will lead to more heat death due to warmer climates, but it could also trigger large scale shifts in ecosystems which would result from e.g. a change in the Thermohauline Circulation. If we can mentally adapt to warmer temperatures, which would arise from a change in pollution perception, then we may be less inclined to lower our carbon emissions and thereby make the shifts in the ecosystems more likely. Thus, in a sense, a limited pollution perception or environmental amnesia implies a decrease in the social cost of carbon and, while it may be argued to be an adaptation mechanism, it can have unwanted side effects.

The other point is obviously whether or not we want our future generations to adapt to a worsened environment. For example, a variety of studies “found that the reported happiness of people who lost a body part was only marginally lower than the reported happiness of population means. Therefore, people are simply able to learn to live with certain health problems.” Nevertheless, forcing our future generations to adapt to a worsened environment decreases their menu of choice, which in turn is likely to decrease their capabilities or opportunities. And if we believe philosophers like Amartya Sen, then precisely these are  to be maximized.

I have a new working paper which clearly shows that a policy maker who evaluates mankind’s well-being would fully favour mitigation over adaptation. In fact, the result is that a policy maker should not invest in adaptation, because this may reduce global well-being significantly.  If you want to know more, please do read on.

Read More

Just saw the news that the European Union agrees on its position for the Paris climate change conference. Check it out HERE. There is one main point that I am concerned about:

Read More

In a recent post, Matthew Kahn stated that “…communities should use their own $ to defend themselves.  Money doesn’t grow on trees and cities face balanced budget conditions.  Do coastal communities merit a subsidy to take gambles?  Read up on moral hazard!  To pay for these subsidies will require that somebody else’s taxes will have to go up.” Basically, should taxpayers pay/provide support for coastal cities’ prevention expenditure?

I’d like to take up on the points that Matthew throws in here. In my opinion, he is right – partly… I think the correct answer to his questions should also really depend on a) the potential for a community to defend itself, and b) on the social benefit that the community creates for society; and on c) the extent to which moral hazard matters. To my great shame I have to admit that I never read his book Climatopolis, but it is somewhere on my desk waiting to be read. So this is here is not a criticism but just some points that he may or may not have already written upon (@Matthew – correct me if I am wrong).

Let us split moral hazard into two classes- ex ante and ex post moral hazard. Honestly, I think that ex post moral hazard cannot be that large a factor. Who really thinks that a financial compensation is able to cover, even partly, the loss of everything that one owns in case the house gets flooded? All the time spent on refurbishing the house, on trying to rescue old photos and getting a harddrive back running that is soaked in water? My guess is that people who move to hazard-prone areas do this because they really feel that the probability of an event is extremely low, or that they can sufficiently shelter themselves from a disaster, or simply and frankly because they have no other choice (e.g. in Bangladesh). I don’t believe that an expected financial compensation in case a disaster occurs makes people feel that this would compensate them sufficiently so that it is worthwhile to move to the hazard-prone area. BUT – this is a guess, and I have yet to see empirical evidence that points in a different direction.

However, ex ante moral hazard is different. It could very well be that someone moves to a hazard-prone area in the belief that once he moved there, society will free resources that then help him to prevent himself from being affected by a disaster. This is a potential problem, and it is different from the case above. Here we deal with ex ante measures to prevent someone from suffering in case a disaster occurs, while above I discussed about the potential extent for moral hazard in an ex post scenario.

Also, some communities do simply not have the finances to shelter themselves against disasters, or not enough money to fully shelter themselves. Should society in this case help that community or not? I think part of the answer depends on whether the moral hazard in the ex ante prevention argument is sufficiently strong or not. If I know that once I moved to a hazard-prone area the government will invest in ex ante prevention, then this will increase my incentives to move there obviously. In this case, society may invest too much into hazard-prone areas, since more people will move there with the expectation of seing an increasing prevention expenditure.

(This could make for a nice simple model btw… Anyone?)

But given the fact that there is no area without hazard, what is society’s optimal level of population in hazard-prone areas?

%d bloggers like this: