Journal Article

Interpreting Nonlinear Semi-Elasticities in Reduced-Form Climate Damage Estimation

Jun 1, 2018 | Casey J. Wichman

Abstract

Observed changes in weather can reveal marginal impacts of climate change on economic outcomes and the potential for adaptation. When modeling the nonlinear relationship between weather and changes in economic outcomes empirically, model choice can confound the interpretation of marginal and percentage effects and their respective confidence intervals. I present a simple solution for better characterizing semi-elasticities of nonlinear climate damages, and evaluate its relevance in interpreting empirical climate damages. For small marginal effects, the implications of this interpretation error is small; for larger effects, however, the misinterpretation error can be substantial.