The Economics of Environmental Risks

Uncertainty is part and parcel of the human condition. The need to manage climate risk has shaped human institutions for many centuries, giving rise to insurance in agricultural societies and to patterns of land holdings across medieval Europe. Today's concern about global climate change breaks new ground. lt challenges conventional wisdom in two ways One is the worldwide scope of the changes considered. We are concerned with potential catastrophes, such as changes in the sea level and global shifts in the availability ol' water and fertile soil. No society can ignore such risks The second challenge is that these changes appear to be driven by human activity, which has now reached levels at which it can affect the earth's fundamental processes, such as its atmosphere and its climate. These two new elements, the global and endogenous nature of these risks, have extended human uncertainty both qualitatively and quantitatively