Abstract
Policy challenges are commonly framed using social valuations such as the social cost of climate change and the social value of research and development. Uncertainty, as it pertains to climate change and other policy challenges, operates through multiple channels, and its impact varies across horizons. Our research proposes policy assessments and valuation 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 of contributions to valuation. These decompositions enhance our understanding of which contributions to uncertainty matter the most and over what horizons their impacts are most pronounced. We use these methods to illustrate when and why uncertainty concerns lead to more proactive policy approaches to climate change.
