Next week, Daxuan Zhao and I will release a new economics paper focused on the role that climate skeptics play in determining how people adapt to climate change. A key point to note is how our paper differs from the usual New York Times narrative that focuses on the concern that climate change skeptics are inhibiting the U.S Congress from enacting carbon taxes. In our paper, there is NO GOVERNMENT!
Individuals are consuming goods that contribute to climate change and the world is warming. So, there is an externality but if there is sufficient demand for adaptation products, firms will offer them. We introduce climate skeptics. These are people who do not believe that the world is warming and we study how their presence effects the competitive equilibrium and the quality of life of the rational agents.
The Impact of Climate Change Skepticism on Adaptation in a Market Economy
Climate change will increase the risk of temperature extremes. Induced innovation could
offset some of this threat. This paper explores the demand and supply for climate adaptation
innovation in a market economy. A new version of the Lucas Critique emerges such that past
relationships between population death rates and extreme heat are attenuated as endogenous
innovation takes place. Climate change induces this innovation because the rising temperatures
increase demand for self protection products and for profit firms respond to these incentives.
We then augment the model to introduce “climate skeptics”. Such skeptics reject the claim that
the world is warming and thus do not increasingly demand adaptation products. We study how
the economy's rate of adaptation innovation, cross city migration, real estate pricing and the
welfare of agents with rational expectations are all affected by the presence of such skeptics.
So, this paper melds some ideas from behavioral economics, innovation economics and urban economics to study adaptation.