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Climate Change Adaptation under Heterogeneous Beliefs

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Document pages: 28 pages

Abstract: We study strategic interactions between firms with heterogeneous beliefsabout future climate impacts. To that end, we propose a Cournot-typeequilibrium model where firms choose mitigation efforts and productionquantities such as to maximize the expected profits under their subjectivebeliefs. It is shown that optimal mitigation efforts are increased by thepresence of uncertainty and act as substitutes; i.e., one firm s lack ofmitigation incentivizes others to act more decidedly, and vice versa.

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