11 Risking
11.1 Uncertainty
Abstract
Uncertainty is critical to questions about climate change policy. Recently developed recursive integrated assessment models have become the primary tool for studying and quantifying the policy implications of uncertainty. The first wave of recursive models has made valuable, pioneering efforts at analyzing disparate sources of uncertainty. We decompose the channels through which uncertainty affects policy and quantify them in a recursive extension of a benchmark integrated assessment model. We argue that frontier numerical methods will enable the next generation of recursive models to better capture the information structure of climate change and to thereby ask new types of questions about climate change policy
Lemoine (2016) Uncertainty Recursive IAM
Cubic damage triple the risk premium
11.2 Pooling Risk
We each put $100 a month in our individual piggy banks to cover potential medical costs one day.
We all chip in $100 a month, for anyone who needs medical care this month.
Same costs for everyone, totally different risks, totally different societies.
Pooling risk reduces/eliminates volatility. Off course it also introduces adverse selection and moral hazard.
(Peters/Pienar (Twitter))