WP2. Considering how diverse actors handle uncertainties and variability
Carlsson et al. (2021) report experimental evidence on the role of threshold uncertainty for voluntary efforts to provide public goods. They explicitly compare summation and weakest link technologies. The former relates to climate policy where the total sum of abatement efforts is decisive for reducing climate change. Yet, in many situations low contributions by one subject cannot necessarily be compensated by others. Such weakest link settings apply, e.g., for efforts to counter pandemic situations or for sustaining dikes, or for maintaining security. Threshold uncertainty, i.e. not knowing how much efforts are required to mitigate an adverse event, is found to severely hamper cooperation under the weakest links, yet a less bleak picture arises in the summation settings. In both settings, non-binding pledges are found to improve chances of threshold attainment, thereby lending support for the pledge and review component under the Paris agreement.
Koch and Lange (2022) add further insights to the important role of pledge and review mechanisms. They focus on the role of cost uncertainty and heterogeneity, motivated by pledges being made before knowing the exact economic circumstance and thus the costs of keeping the implicit promise. Again, the review mechanism substantially enhances cooperation, yet cost uncertainty impacts both the initial pledges as well as later compliance because higher than expected costs provide an excuse for falling short of the pledged contribution amounts.
We additionally documented that uncertainty impacts the acceptance of policy instruments. Hauge et al. (2021) demonstrate in a survey experiment that the opposition to trade institutions across diverse domains (e.g., trade in carbon permits or trade on organs) is related to an aversion to impose risks on others. The acceptance of trade institutions is found to be crucially depend on the personal background conditions (e.g. wealth and own benefits from the trade institution) as well as on how trade sustains or even increases existing inequalities. In this vein, Andor et al. (2021) also show that the perceived unfairness of renewable energy policy may limit the political support for renewable energy (climate) policy, thereby creating uncertainty towards the prospective regulatory measures. In further research in B5, research on regulatory uncertainty was conducted with respect to the effectiveness of policy measures. Research so far concentrated on documenting design problems of the market stability reserve in the EU ETS (Perino, 2019; Perino et al., 2022) and thus pointing out the incoherence of policy goals (Willner and Perino, 2022).
Climate risks and uncertainties do not only affect decisions, yet also have a direct impact on life satisfaction. Berlemann and Eurich (2022a) find that regions with comparatively high hurricane risk report significantly lower levels of life satisfaction, even after controlling for zip-code-specific, time-specific and individual-specific differences. A similar effect is demonstrated in Berlemann and Eurich (2022b) for the links between life satisfaction and drought risks. Beyond life satisfaction, the experience of natural disasters impacts migration. Berlemann and Tran (2020) find that droughts primarily cause temporary migration while flood events tend to induce permanent moves out of the affected regions. Further evidence for temporary emigration induced by tropical storms is reported in Berlemann and Tran (2022). Beyond the Vietnam case, Berlemann et al. (2021) demonstrate that empirical findings on climate-related international migration patterns heavily depend on the method by which migration flow data is derived.
Marotzke et al. (2020) disentangle poverty-driven from climate-driven migration within an experimental-economics setting. Relatively rich participants try to prevent migration by the poor, but in the long run these attempts are unsuccessful because of free-riding among the rich. The rich are willing to increase their effort at averting dangerous climate change when the poor are hit by a climate extreme event exacerbating their poverty.
References:
Andor, M. and A. Lange, and S. Sommer (2021), Fairness and the Support of Redistributive Environmental Policies. USAEE Working Paper No. 21-535, Available at SSRN: https://ssrn.com/abstract=3995595.
Berlemann, M., Eurich, M. (2022a), Natural Hazard Risk and Life Satisfaction. Empirical Evidence for U.S. Hurricanes, in: Ecological Economics.
Berlemann, M., Eurich, M. (2022b), Does Drought Risk Depress Expected Well-Being? In: Applied Economics Letters.
Berlemann, M., Tran, T.X. (2022), Tropical Storms and Temporary Migration. Empirical Evidence for Vietnam, in: Population and Development Review.
Berlemann, M., Tran, T.X. (2020), Climate-Related Hazards and Internal Migration. Empirical Evidence for Rural Vietnam, Economics of Disasters and Climate Change 4, 385–409.
Berlemann, M., Haustein, E., Steinhardt, M. (2021), From Stocks to Flows. Evidence for the Climate-Migration-Nexus, IZA Discussion Paper No. 14450, IZA Institute of Labor Economics.
Carlsson, F., E. K. Claes, and A. Lange, (2021) “All it takes is one: The effect of weakest-link and summation aggregation on public-good provision under threshold uncertainty”. CESifo Working Paper No. 9457, Munich.
Hauge, K. E., S. Kverndokk, and A. Lange (2021), “Why people oppose trade institutions – On morality, fairness and risky actions”. CESifo Working Paper No. 9456, Munich.
Koch, Juliane and Andreas Lange (2022) Non-compliance and the voluntary provision of public goods: the role of cost uncertainty and heterogeneity, in preparation.
Marotzke, J., D. Semmann, and M. Milinski, 2020: The economic interaction between climate change mitigation, climate migration and poverty. Nature Climate Change, 10, 518-525, 10.1038/s41558-020-0783-3.
Perino, G., M. Willner, S. Quemin, and M. Pahle (2022) The Market Stability Reserve in the EU ETS: Firefighter or fanning the flames?, Review of Environmental Economics and Policy, forthcoming.
Perino, G. (2019). Reply: EU ETS and the waterbed effect. Nature Climate Change, 9(10), 736-736.
Willner, M. & Perino, G. (2022) Beyond Control: Policy Incoherence of the EU Emissions Trading System, Politics and Governance, 10(1), in press