Working Papers

Notes on Optimal Growth, Climate Change Calamities, Adaptation and Mitigation

AUTHOR(s): Chisari, Omar
PUBLISHED: September 2010
RELATED TOPICS: Macroeconomics


This paper discusses a strategy for including adaptation and mitigation expenses in an optimal growth model under threat of climate change calamities. Calamity is the result of a shock that reduces the utility level (even to extinction) and/or triggers a fundamental change in the economic structure. Mitigation expenses reduce the long-run probability of a calamity or the speed of convergence to it; adaptation expenses help boost the standard of living after the calamity. The willingness to contribute to those expenses and the effects on the long-run capital stock of the economy depend on perceptions of how these expenditures will modify the probability of a shock occurring and the standard of living after the shock. The choice between a clean technology and one that increases GHG emissions is also discussed.

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