Mitigation and adaptation represent two solutions to the issue of global warming. While mitigation aims at reducing emissions and preventing climate change, adaptation encompasses a broad scope of techniques used to reduce the impacts of climate change once they have occurred. Both have direct costs on a country's gross domestic product, but costs also arise from temperature increases due to inaction. This paper introduces a tipping point in a real options model and analyzes optimal investment choices in mitigation and their timing.
Chesney, M; Lasserre, P; Troja, B
Mitigating global warming: a real options approach
Annals Of Operations Research