Econometrica

Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Sep, 2023, Volume 91, Issue 5

Mitigating Disaster Risks in the Age of Climate Change

https://doi.org/10.3982/ECTA20442
p. 1763-1802

Harrison Hong, Neng Wang, Jinqiang Yang

Emissions abatement alone cannot address the consequences of global warming for weather disasters. We model how society adapts to manage disaster risks to capital stock. Optimal adaptation—a mix of firm‐level efforts and public spending—varies as society learns about the adverse consequences of global warming for disaster arrivals. Taxes on capital are needed alongside those on carbon to achieve the first best. We apply our model to country‐level control of flooding from tropical cyclones. Learning rationalizes empirical findings, including the responses of Tobin's q, equity risk premium, and risk‐free rate to disaster arrivals. Adaptation is more valuable under learning than a counterfactual no‐learning environment. Learning alters social‐cost‐of‐carbon projections due to the interaction of uncertainty resolution and endogenous adaptive response.


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Supplemental Material

Supplement to "Mitigating Disaster Risks in the Age of Climate Change"

Harrison Hong, Neng Wang, and Jinqiang Yang

This online appendix contains material not found within the manuscript.

Supplement to "Mitigating Disaster Risks in the Age of Climate Change"

Harrison Hong, Neng Wang, and Jinqiang Yang

This zip file contains the replication files for the manuscript.