Sharing of Climate Risks across World Regions

Arbeitspapier

Uncertainty is prevalent in the context of climate change impacts. Moreover, the distribution across the globe is not uniform. We analyze how climate risks could be reduced via an insurance scheme at the global scale across regions and quantify the potential welfare gains from such a scheme. Starting from the standard welfare analysis in Integrated Assessment Models (IAMs), which assumes no risk sharing across region, we introduce global risk sharing via a market for state-dependent Arrow-Debreu securities. We show that this allows equalizing relative consumption differences between states of the world across regions. We estimate that such risk sharing scheme of climate risks could lead to welfare gains reducing the global costs of climate change by up to one third, while the amount of transfers required is substantial. This provides arguments for considering risk sharing in IAMs, but also for potentially welfare increasing negotiations about sharing risks of climate change at the global level.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Nota di Lavoro ; No. 78.2014

Classification and Topics

• Classification: Wirtschaft ; Climate; Natural Disasters and Their Management; Global Warming ; Criteria for Decision-Making under Risk and Uncertainty ; Equity, Justice, Inequality, and Other Normative Criteria and Measurement
• Subject: Uncertainty ; Risk Sharing ; Insurance ; Climate Change ; Risk Aversion

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Emmerling, Johannes
• Event: Veröffentlichung
• (who): Fondazione Eni Enrico Mattei (FEEM)
• (where): Milano
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/107716
• Last update: 10.03.2025, 11:43 AM CET