Adapting to Climate Change: Markets and the Management of an Uncertain Future.

AuthorFitzgerald, Timothy

Adapting to Climate Change: Markets and the Management of an Uncertain Future, by Matthew E. Kahn (Yale University Press, 2021) 243 pages, ISBN 978-0-300-24671-1.

Around the world, political pressure for climate action is colliding with economic reality, creating an opportunity for economists to participate in policy debates and bring important insights to bear. Despite alternative approaches to the many issues presented by climate change, a policy consensus coalesced around emissions mitigation as the primary objective. Avoiding future warming by sharply reducing emissions is sold as a critical choice for humanity. Matthew Kahn takes a different approach, solidly grounding theoretical and applied microeconomics arguments for focusing on the alternative, and perhaps complementary, strategy of adaptation.

The first chapter establishes some economic fundamentals relevant to any discussion of climate change. These include discussion of forecasting problems, uncertainties about climate science, issues with assessing economic damages from climatic changes, and relevant basics of both risk aversion and how to think about low-probability high-impact events. After reading this initial offering, the reader is sure that the author is an inveterate economist and what follows is no screed espousing climate action or inaction. The serious treatment of the Lucas critique highlights both the natural human impulse to adapt and the policy evaluation conundrum that it creates.

Kahn emphasizes that climate change will have unequal impacts around the globe, and even on different residents of the same location. This heterogeneity is in part due to the many dimensions of life that will be touched by climate change. While snow skiers may find their recreational opportunities reduced, water skiers may find greater opportunity. This shift may cause some snow skiers to take up water skiing, both individually and on net.

Kahn develops two important connections to recent policy debates: one is distributional impacts and how income and wealth inequality may be exacerbated by climate change; the second is how infrastructure investments can and should be made to minimize long-term costs. Devoting a chapter to each topic, Kahn emphasizes how human capital investment and migration opportunity can improve the lot of the poorest and most vulnerable people. In this vein he connects to his earlier work on the climate advantages of urbanization (Kahn 2013). The infrastructure...

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