An Approach to Estimating the Economic Impact of Climatic Change on a Regional Economy

Abstract

In previous attempts to estimate the economic impact of climatic change on a regional economy, techniques which tend to understate the actual impact of the hypothesized modification on the natural environment have been used. Most of these studies have not simulated a change in production technology in response to an altered climatic regime. Few have incorporated the effect of an induced change in consumption spending as a consequence of different levels of income. In this paper an approach is proposed which is more comprehensive than those previously employed. A flexible approach which allows for adjustment in production technology in response to an altered climatic regime is incorporated. Also explicitly incorporated in the analysis are households, in order to capture induced changes in consumption spending. With use of this approach, impacts of hypothesized climatic change are much more pronounced than those produced in previous studies in which less comprehensive methods of analysis were used.