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Environment and Sustainability

Edited By Celil Aydin and Burak Darici

The fact that environmental issues, which cause a significant externality within global goods, have gained a global dimension, necessitated more concrete steps for challenging with environmental issues. At this point, efforts to reduce environmental issues and protect the environment have been on the axis of sustainability. This book contains theoretical and empirical researches written by academicians and researches in the field of environment and sustainability. In the contributions, the macro dimensions of environmental pollution such as economic growth, health sector and technological development are examined. In addition to these, the contributors deal with micro dimensions such as consumption, marketing, accounting and firm behavior both in theory and empirically.

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Environmental Catastrophes and Deep Uncertainties Surrounding the Economics of Climate Change

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Introduction

There is a big debate in climate change which is a natural result of small knowns and big unknowns. While one party demands immediate action by looking at the small knowns, the other party demonstrates a “wait-and-see” policy. The problem is that the benefits from mitigation activities are distant and uncertain but the investment costs are immediate and high, and extends to a longer period of time.

Evaluating benefits and costs necessitates an economist to use discounting in the analysis. However, since the climate change is a long-term problem and there are deep uncertainties regarding its consequences, a usual integrated assessment model (IAM) to conduct a cost-benefit analysis (CBA) might be an oversimplification of the future state that we will have to face. As a result, the question is how to incorporate structural uncertainty into the analysis.

This chapter focuses on different perspectives about discounting. Firstly, in Section 1, we look at discounting under certainty. Such simplicity will be helpful when we consider discounting under structural uncertainty. In Section 2, we focus on the structural uncertainty. This is followed by a discussion of the Dismal Theorem in Section 3. In Section 4, we examine the structural uncertainties in the functional forms of utility. Lastly, Section 5 concludes.

1 Discounting under Certainty in a Single World

The economics of climate change is frequently outlined as a choice among two scenarios. In one scenario we can prevent future losses...

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