NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Risk Management and Climate Change

Howard Kunreuther, Geoffrey Heal, Myles Allen, Ottmar Edenhofer, Christopher B. Field, Gary Yohe

NBER Working Paper No. 18607
Issued in December 2012
NBER Program(s):   EEE

The selection of climate policies should be an exercise in risk management reflecting the many relevant sources of uncertainty. Studies of climate change and its impacts rarely yield consensus on the distribution of exposure, vulnerability, or possible outcomes. Hence policy analysis cannot effectively evaluate alternatives using standard approaches such as expected utility theory and benefit-cost analysis. This Perspective highlights the value of robust decision-making tools designed for situations, such as evaluating climate policies, where generally agreed-upon probability distributions are not available and stakeholders differ in their degree of risk tolerance. This broader risk management approach enables one to examine a range of possible outcomes and the uncertainty surrounding their likelihoods.

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Document Object Identifier (DOI): 10.3386/w18607

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