Uncertainty, Social Valuation, and Climate Change Policy

This paper explores how uncertainty, as it pertains to climate change challenges, operates through multiple channels and has impacts for the timing of responses. We use decision theory to embrace a broad notion of uncertainty and highlight its signif-icance for forming robustly optimal policies. These prudent policies depend on social valuations such as the social cost of climate change and the social value of research and development. Drawing insights from stochastic response theory and asset pricing, we assess when and why enhanced uncertainty concerns have important consequences for social valuation and lead to more proactive policy approaches to climate change.