THE ROLE OF UNCERTAINTY AND INSURANCE IN ENDOGENOUS CLIMATE CHANGE

We investigate the role of uncertain, endogenous extreme events and insurance in a growth model and a fully-calibrated world simulation. We find that i) transparency of the insurance sec-tor is the major determinant for the main variables, implying substantial policy opportunities; ii) the difference between the average Poisson path and the internalized full insurance one stems from the uncertainty; iii) precautionary beliefs on the frequency of extreme events lead to more sustainability; iv) technical change does not change the ordering of the paths but leads to a more sustainable future; v) a social security system which prices insurance fairly is preferable to an insurance industry which provides insurance with an overhead. JEL Classification: Q5; O1