Uncertainty, Social Valuation, and Climate Change Policy

Uncertainty, as it pertains to climate change and other policy challenges, oper-ates through multiple channels. Such challenges are commonly framed using social valuations such as the social cost of climate change and the social value of research and development. These valuations have contributions that vary across horizons. We propose decompositions when the nature of this uncertainty is broadly conceived. By drawing on insights from decision theory, stochastic impulse response theory, and the pricing of uncertain cash flows, we provide novel characterizations. We use these methods to illustrate when and why uncertainty leads to more proactive policy approaches to climate change.