PER Distinguished Lecture: Lars Peter Hansen, “Pricing Uncertainty Induced by Climate Change”
Friday, April 13, 2018
1512 International Affairs Building
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Climate science documents uncertainty induced by alternative emission scenarios and alternative models, and it constructs simplified approximations to complex models. This lecture examines the extent to which if these components of uncertainty matter in an economic setting and over what time horizons. To address this problem we pose a hypothetical social planning problem and embrace recent advances in decision theory designed to confront uncertainty, broadly conceived. We use “shadow” asset prices to assess the importance of climate uncertainty. The climate impacts depend on the horizon to the adverse outcomes might be realized. We use some recent data to assess some of the current impacts or impacts expected to be realized in the near term.