This was part of Decision Making and Uncertainty

How Should Climate Change Uncertainty Impact Social Valuation and Policy?

Lars Hansen, University of Chicago

Wednesday, February 7, 2024


We study the uncertain transition to a carbon-neutral economy. The requisite technological innovation is made more probable through research and development (R&D). We explore multiple channels of economic and geoscientific uncertainties that impact this transition, and we show how to assess the relative importance of their varied contributions. We represent the social benefit of R&D and cost of global warming as expected discounted values of social payoffs using a probability measure adjusted for concerns about model misspecification and prior ambiguity. Our quantitative results show the value of R&D investment even when the timing of its  technological success is highly uncertain.