Does Skewness Affect Risk Preferences and Willingness to Pay for Climate Change Mitigation Policy? Colleen Carroll University of Nevada, Las Vegas Department of Economics February XXXX, 2012

Introduction Which climate change policies are individuals willing to support? How do uncertainty and skewness of the perceived distribution of climate change affect willingness to pay for climate change mitigation? I survey 165 UNLV undergraduate students Ask about perceptions of the distribution of climate change. Ask whether individuals will be willing to pay a certain amount to mitigate the change Using a probit model, I find that respondents are willing to pay between $90.33 to $176.94.

IPCC IPCC report in 2007 Predicts that there will be an increase in premature death from malnutrition, extreme heat, floods, droughts, and decreasing water quality Rising global temperatures will put ecosystems and species in danger Substantial risks from a two degree change but catastrophic risks from a two to twelve degree change Unequal distribution of climate change effects Africa: increase in water stress Asia: shortage of fresh water Latin America and Australia: biodiversity losses Uncertainty over severity of climate change Amount and effects of future emissions Earth’s ability to store carbon Interaction between oceans, land, and climate

Climate change distribution

UNLV Student Survey Data taken from a survey of 165 undergraduates in Introduction to Business, Principles of Statistics II, and Environmental and Resource Economics in Spring 2009 and 2010. Given information about predicted climate change and possible outcomes Two drastically different predictions from IPCC report Stott: predicts 6 degree temperature change and tight (low variance) distribution Knutti: higher 7 degree temperature change and larger variance distribution Students are asked to create a similar distribution based on their perceptions of the distribution of climate change. Also asked to answer a valuation question: whether they would be able to pay a certain amount to mitigate a certain temperature change. Bid amounts between $5 and $250 Temperature change of either 0 or 2 degrees Fahrenheit

Determinants of Empirical Moments Females have higher mean, lower variance, more negatively skewed distributions Females expect higher temperature changes and place higher weight on larger temperature changes. Democrats have a higher mean expected temperature change and higher variance than those who are not affiliated with a political party. Other political affiliations and school major do not predict the first three moments of the distribution.

Results Five models are shown. The first three moments of the distributions are highly correlated so we use only one or two as well as all three I find: A negative coefficient on the bid amount across all specifications. Higher willingness-to-pay for older individuals ($2.44-$3.55 per year of age) and Economics majors ($70.33-$79.22 more than non-economics majors). No relationship between gender and WTP. A strong positive relationship between the mean of the subjective temperature change distribution and WTP Respondents’ WTP increases by $18/month - $21/month for a one degree increase in the mean. A significant, positive relationship between variance and WTP only in column (3), suggesting that it is highly correlated with the mean. An insignificant relationship between skewness and WTP.

Interpretation Expected WTP per month ranges overall between $90.33 and $176 This is lower than Cameron’s estimate of $241 in 2011 dollars to mitigate a one degree increase in temperature Could be lower because The setups of the questionnaires are different Temperature might be a less salient issue in Nevada than California Possible temperature changes are different

Conclusion After conducting a survey of UNLV students, I find that WTP to mitigate climate change depends on the mean and variance of the perceived temperature change distribution. These findings have implications for climate change policy Policy makers should be sensitive to the cost of the policy since WTP is sensitive to the bid amount Individuals who perceive the temperature change to be higher will be willing to pay more so education programs about the risks of climate change might increase public support for climate change policy. Similarly, risk-averse individuals will pay more for a policy and are therefore more likely to support one.