Summary
This paper extends the Dynamic Integrated Model of Climate and the Economy (DICE) to account for endogenous social preferences — the idea that climate policy itself shapes how society values nonmarket goods relative to market consumption. By solving iteratively and incorporating preference shifts, the authors demonstrate that ignoring this feedback loop significantly underestimates both the damages from climate change on nonmarket goods and the stringency of optimal climate policy. The work suggests that climate policy becomes self-reinforced when it protects increasingly valued environmental amenities.
UK applicability
The methodological framework is applicable to UK climate policy appraisal, particularly in valuing ecosystem services and cultural amenities affected by climate change. However, the baseline calibration and preference parameters would require UK-specific recalibration to inform domestic policy decisions on carbon pricing and abatement targets.
Key measures
Social cost of carbon; relative price of nonmarket goods; abatement rates; nonmarket goods damage valuation; percentage change in social cost of carbon due to endogenous preferences (12–18% this century); percentage underestimation of nonmarket damages (15%)
Outcomes reported
The study modelled the optimal climate policy when social preferences for market and nonmarket goods are endogenously determined by climate policy itself, using an amended DICE model. It quantified how neglecting changing social preferences leads to underestimation of nonmarket goods damages and affects the calculated social cost of carbon.
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