Valuing adaptation under rapid change
Orthodox economics is not well suited to the deep uncertainty faced under climate change as the models tend to make the world (and outcomes) simpler than it is by smoothing over variations. In need of a new approach, this project developed an economic framework for assessing the values at risk, the cost of different adaptation options, and also the valuation of benefits as a combination of avoided damages and institutional values such as equity, justice, sustainability and profit. This framework is polycentric, in that it can accommodate a wide range of methods and tools rather than concentrating on cost benefit analysis and its various modifications. It involves the adaptation of two existing models – a generic problem-solution-implementation model that combines risk and innovation, and an IAD (institutional analysis development framework) framework that assesses adaptation at the institutional scale. How adaptation actions propagate across domains should be of particular interest to policy-makers because policies designed for single domains may break down. The greatest risk with rapid climate change is with changing extreme events such as heat stress, fires, floods and storm events that can escalate and combine in a variety of ways, propagating risks across institutional, spatial and sectoral domains. For example, a series of extreme events may propagate economic risks from state to federal level, and from the private to the public sector if properties are under-insured. Social capital, if eroded may transfer from self-reliance to government relief and natural capital may degrade. In such a way, the current focus of expenditure on disaster response rather than resilience programs may actually be counter-productive to reducing risks at both a financial and institutional level.
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