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Climate variability, economic adaptation, and investment timing

Author

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  • Evelyn L. Wright
  • Jon D. Erickson

Abstract

Recent models of adaptation to climate change have allowed economic agents perfect foresight about future climatic conditions. We argue that it is time to move beyond assumptions of perfect foresight to consider the impacts of changing climate predictability on adaptation dynamics. An option value investment model is used to illustrate the impact of one significant determinant of predictability – climate variability – on the timing of adaptation. Decreased predictability leads to postponed adaptation and increased pre-adaptation damage costs, indicating that estimates of the damage reductions to be gained through adaptation based on perfect foresight have been excessively optimistic.

Suggested Citation

  • Evelyn L. Wright & Jon D. Erickson, 2003. "Climate variability, economic adaptation, and investment timing," International Journal of Global Environmental Issues, Inderscience Enterprises Ltd, vol. 3(4), pages 357-368.
    • Handle: RePEc:ids:ijgenv:v:3:y:2003:i:4:p:357-368
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    Citations

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    Cited by:

    1. Asian Development Bank Institute, 2017. "Economic Analysis of Climate-Proofing Investment Projects," Working Papers id:11866, eSocialSciences.
    2. Asian Development Bank (ADB) & Asian Development Bank (ADB) & Asian Development Bank (ADB) & Asian Development Bank (ADB), 2015. "Economic Analysis of Climate-Proofing Investment Projects," ADB Reports RPT157588-2, Asian Development Bank (ADB).
    3. Charles Sims & Sarah Null & Josue Medellin-Azuara, 2017. "Hurry up or wait: The effect of climate change and variability on the timing of private adaptation," Working Papers 2017-04, University of Tennessee, Department of Economics.
    4. Heuson, Clemens & Gawel, Erik & Gebhardt, Oliver & Hansjürgens, Bernd & Lehmann, Paul & Meyer, Volker & Schwarze, Reimund, 2012. "Fundamental questions on the economics of climate adaptation: Outlines of a new research programme," UFZ Reports 05/2012, Helmholtz Centre for Environmental Research (UFZ).
    5. Charles Sims & Sarah E. Null & Josue Medellin-Azuara & Augustina Odame, 2021. "Hurry Up Or Wait: Are Private Investments In Climate Change Adaptation Delayed?," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 12(04), pages 1-36, November.
    6. Céline Déandreis & Christian Pagé & Pascale Braconnot & Lars Bärring & Edoardo Bucchignani & Wim Cerff & Ronald Hutjes & Sylvie Joussaume & Constantin Mares & Serge Planton & Maarten Plieger, 2014. "Towards a dedicated impact portal to bridge the gap between the impact and climate communities : Lessons from use cases," Climatic Change, Springer, vol. 125(3), pages 333-347, August.

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