Title: Climate variability, economic adaptation, and investment timing

Authors: Evelyn L. Wright, Jon D. Erickson

Addresses: US Environmental Protection Agency, National Risk Management Research Laboratory, 109 T.W. Alexander Drive (E-305-02), Research Triangle Park, NC 27711, USA. ' Rubenstein School of Environment and Natural Resources, University of Vermont, 344 Aiken Center, Burlington, VT 05405, USA

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.

Keywords: climate change; economic adaptation; investment uncertainty; option value; foresight.

DOI: 10.1504/IJGENVI.2003.004147

International Journal of Global Environmental Issues, 2003 Vol.3 No.4, pp.357 - 368

Published online: 10 May 2004 *

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