Seminar – Political economy of climate change adaptation: Loss of habitat and rising inequality

We study the evolution of public adaptation to physical climate risk when political preferences are shaped by rising climate risk and growing economic inequality. Economic polarization implies tighter financial conditions for more households, undermining private efforts to limit the direct impact of climate change. Political support for public intervention to preserve habitable land evolves over time when households differ in age, income and beliefs about the intervention efficacy. The rise in climate risk increases support for public adaptation. If beliefs are not too dispersed, this leads to the eventual tipping of the political equilibrium, favouring a new political coalition that supports more public adaptation. A rise in inequality may induce an additional political tipping point but does not always increase public adaptation, thus highlighting the importance of controlling economic inequality in the fight against climate change. We further show that public intervention is undermined by a “tragedy of the horizon” effect as the economy fails to internalize the long term benefits for future generations. This prevents public adaptation from converging to the long-term social optimum even when  protective investment is highest.

Room E0.22