Transcript Does Skewness Affect Risk Preferences and Willingness to

Colleen Carroll
University of Nevada, Las Vegas
Department of Economics
February XXXX, 2012

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.
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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
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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
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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

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Stott: predicts 6 degree temperature change and tight (low variance) distribution
Knutti: higher 7 degree temperature change and larger variance distribution
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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

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.

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.

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

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.