Showing posts from August, 2013

Crop insurance under climate change

How should crop insurance premiums adjust to a changing climate in order to remain actuarial fair? Short answer:  Very slowly. That seems pretty obvious to me, and hopefully to anyone who thinks about it for a few minutes, even if you think climate change is ultimately going to have big impacts.  Moreover, the way crop insurance premiums are already determined---as a function a farmer's own recent yield history---gradual adjustment of premiums will take place naturally. So, what should USDA's Risk Management Agency do, if we think nasty crop outcomes like last year are going to be more frequent going forward? Well, I'll abstain from making a recommendation, but I will say that if they do absolutely nothing, there will be no significant budgetary implications. None of this is to say that there might not be other ways to improve crop insurance. Update: So, if this issue is so unimportant, why do I mention it?  Because I'm seeing and hearing the question a lot

Integrated assessment models: What do they tell us about climate change policy?

" Very little ,"  according to Robert Pindyck in a new working paper. Integrated assessment models (IAMs to practitioners)  stitch together projections from climate models, energy sector models, agronomic crop models, models of other sectors of the economy, and partial or general equilibrium models that account for price and interactions with the broader economy to derive a more comprehensive evaluation of costs and benefits from climate change. Pindyck is understandably frustrated with the false sense of precision these models can impart.  As he explains, a few reasonable tweaks of any of these models can give very different estimates about the social cost of carbon---the price we should pay, but typically don't, for emitting CO2. Pindyck raises some good criticisms about IAMs, or at least says out loud a lot of things that many economists have quietly said to each other.  I'm glad he's bringing our varying assumptions and wildly varying cost-of-carbo