Essays on the Economics of Climate Change

Climate change is a major environmental threat and likely one of the most important challenges of our time. In particular, climate extremes –such as heat waves– can have a significant negative effect on society. Yet, many impacts of climate change are poorly understood and binding international climate change agreements are notoriously hard to reach. This work deals with the economics of climate change in three separate essays. The first one introduces a new methodology to estimate the impacts of climate extremes on public health. The second utilizes this methodology to assess the impacts of several climate change scenarios on Europe. The third explores a way to increase cooperation on climate change mitigation policies through explicit communication of the uncertainty of future climate change impacts. In general, human mortality shows an oscillatory pattern on top of a nonlinear trend. It tends to be highest in winter and lowest in summer. The nonlinear trend follows changes in health policies, economic growth rates, and other institutional factors. The first essays shows that singular spectrum analysis can be used for the estimation of this base rate mortality and thus allows to isolate the impacts of climate extremes on human mortality. This methodology is an improvement over approaches based on fixed effects or classic spectral analysis. It makes it possible to extend climate impact analysis to regions and countries for which there are no detailed data from hospital records as only coarse monthly data on mortality are needed. The danger of climate change lies not necessarily in the shift in average temperatures, but more so the increase in frequency of extreme heat events. Yet, while heat waves become more common, cold spells become less frequent. As both types of extreme temperature events increase human morbidity and mortality, the net effect of this shift is unknown. The second essay finds that a scenario of moderate warming can have a positive net effect on some European countries, creating winners and losers. In contrast –severe warming as a result of failed climate change mitigation policies– affects all examined European countries in a negative way. There would be no winners, just losers. As a result of the uncertainty associated with it, climate change poses a different challenge than other social dilemma situations: The negative effects of climate change do not necessarily take place incrementally. While this should be a focal point for policy makers, the costs of climate change tend to be presented within an expected utility framework. Yet, the potential behavioral reactions to this uncertainty are –so far– neither explored nor accounted for in game-theoretic models of climate coalition building. The third essay finds that cooperation in a public goods game can be increased when the uncertainty is communicated explicitly. This means that uncertainty should not be hidden behind expected costs and benefits, but rather be acknowledged when the goal is to form a climate change mitigation agreement.