Becker Brown Bag – Climate Change: Uncertainty and Economic Policy

BFI’s Becker Brown Bag Series invites prominent economists to present cutting-edge research and engage MBA students, undergraduates, and faculty in discussion. The talks highlight the practical use of economics for answering real-world questions pertinent to businesses and policy makers.

Geophysicists examine and document the repercussions for the earth’s climate induced by alternative emission scenarios and model specifications. Using simplified approximations, they produce tractable characterizations of the associated uncertainty. Meanwhile, economists write simplified damage functions to assess uncertain feedbacks from climate change back to the economic opportunities for the macroeconomy. How can we assess both climate and emissions impacts, as well as uncertainty in the broadest sense, in social decision-making?

In this Becker Brown Bag lecture, Lars Peter Hansen provided a framework for answering this question by embracing recent decision theory and tools from asset pricing, and applying this structure with its interacting components in a revealing quantitative illustration. In 2013, Hansen was a recipient of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for his work advancing understanding of asset prices through empirical analysis.

View presentation slides. For more on “Pricing Uncertainty Induced by Climate Change,” read a reflection from Lars Peter Hansen, watch a conversation with co-author Michael Barnett or read the full paper.