The Fatter the Tail, the Fatter the Climate Agreement - Simulating the Influence of Fat Tails in Climate Change Damages on the Success of International Climate Negotiations

41 Pages Posted: 23 Jan 2013

See all articles by Thijs Dekker

Thijs Dekker

Institute for Environmental Studies (IVM)

Rob Dellink

Wageningen UR - Environmental Economics and Natural Resources Group; Organization for Economic Co-Operation and Development (OECD)

Janina Ketterer

European Bank for Reconstruction and Development (EBRD)

Date Written: January 23, 2013

Abstract

International climate negotiations take place in a setting where uncertainties regarding the impacts of climate change are very large. In this paper, we examine the influence of increasing the probability and impact of large climate change damages, also known as the ‘fat tail’, on the formation of an international mitigation agreement. We systematically vary the shape and location of the distribution of climate change damages using the stochastic version of the applied game-theoretical STACO model. Our aim is to identify how changes to the distributional form affect the stability of coalitions and their performance. We find that fatter upper tails increase the likelihood that more ambitious coalitions are stable as well as the performance of these stable coalitions. Fatter tails thus imply more successful, or ‘fatter’, international climate agreements.

JEL Classification: C790, H870, Q540

Suggested Citation

Dekker, Thijs and Dellink, Rob and Ketterer, Janina, The Fatter the Tail, the Fatter the Climate Agreement - Simulating the Influence of Fat Tails in Climate Change Damages on the Success of International Climate Negotiations (January 23, 2013). CESifo Working Paper Series No. 4059, Available at SSRN: https://ssrn.com/abstract=2205588

Thijs Dekker

Institute for Environmental Studies (IVM) ( email )

De Boelelaan 1115
Amsterdam, 1081 HV
Netherlands

Rob Dellink

Wageningen UR - Environmental Economics and Natural Resources Group ( email )

P.O. Box 8130
Wageningen, 6700 EW
Netherlands
+31 (0)317 4 82009 (Phone)
+31 (0)317 4 84933 (Fax)

HOME PAGE: http://www.sls.wau.nl/enr/staff/dellink/

Organization for Economic Co-Operation and Development (OECD) ( email )

Paris
France

HOME PAGE: http://www.oecd.org/env/cc/econ

Janina Ketterer (Contact Author)

European Bank for Reconstruction and Development (EBRD) ( email )

One Exchange Square
London, EC2A 2EH
United Kingdom

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