DP18959 Political Economy of Climate Change Adaptation
We study the evolution of voter support for public adaptation in the face of rising climate risk and growing economic inequality. Households differ in age, income, and beliefs regarding the efficacy of public adaptation. Economic polarization tightens credit constraints for more households, while rising climate risk increases the desire for climate adaptation. Provided that beliefs are not too dispersed, the winning coalition shifts in response to the growth in habitat loss. This induces a political tipping point from a coalition of young an old sceptics towards one of young sceptics and old optimists with higher public adaptation. A steady rise in inequality may induce a second political tipping point, towards a coalition of the low-income old and young pessimists, although the effects on public adaptation are weaker. Public intervention is undermined by pessimism about the efficacy of public adaptation and the "tragedy of the horizon" effect, as voters only partially internalize benefits for future generations. This prevents public adaptation from catching up with the long-term social optimum, even when political support is highest.
