Exploring aggregate economic damage functions due to climate change

A number of issues need to be considered when developing aggregated economic damage functions due to climate change. These include: (i) identification of production processes vulnerable to climate change, (ii) an understanding of the mechanism of vulnerability, (iii) the rate of technological advance and diffusion (iv) the issue of detection of damages and availability of response options. In this paper we will explore the implications of these considerations with the aid of an illustrative model. The findings suggest that there is a significant upward bias in damage functions calculated without consideration of these issues. Furthermore, this systematic bias is larger as climate change increases. We believe the approach explored here is a more suitable model for adoption in future integrated assessments of climate change.