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GHG Targets as Insurance Against Catastrophic Climate Damages

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  • MARTIN L. WEITZMAN

Abstract

A critical issue in climate-change economics is the specification of the so-called "damages function" and its interaction with the unknown uncertainty of catastrophic outcomes. This paper asks how much we might be misled by our economic assessment of climate change when we employ a conventional quadratic damages function and/or a thin-tailed probability distribution for extreme temperatures. The paper gives some numerical examples of the indirect value of various GHG concentration targets as insurance against catastrophic climate-change temperatures and damages. These numerical examples suggest that we might be underestimating considerably the welfare losses from uncertainty by using a quadratic damages function and/or a thin-tailed temperature distribution. In these examples, the primary reason for keeping GHG levels down is to insure against high-temperature catastrophic climate risks.
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  • Martin L. Weitzman, 2012. "GHG Targets as Insurance Against Catastrophic Climate Damages," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(2), pages 221-244, March.
    • Handle: RePEc:bla:jpbect:v:14:y:2012:i:2:p:221-244
    DOI: j.1467-9779.2011.01539.x
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    File URL: http://hdl.handle.net/10.1111/j.1467-9779.2011.01539.x
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    1. Martin L. Weitzman, 2011. "Additive Damages, Fat-Tailed Climate Dynamics, and Uncertain Discounting," NBER Chapters, in: The Economics of Climate Change: Adaptations Past and Present, pages 23-46, National Bureau of Economic Research, Inc.
    2. Dietz, Simon, 2009. "High impact, low probability? An empirical analysis of risk in the economics of climate change," LSE Research Online Documents on Economics 37612, London School of Economics and Political Science, LSE Library.
    3. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
    4. Simon Dietz, 2009. "High impact, low probability? An empirical analysis of risk in the economics of climate change," GRI Working Papers 9, Grantham Research Institute on Climate Change and the Environment.
    5. Partha Dasgupta, 2008. "Discounting climate change," Journal of Risk and Uncertainty, Springer, vol. 37(2), pages 141-169, December.
    6. -, 2009. "The economics of climate change," Sede Subregional de la CEPAL para el Caribe (Estudios e Investigaciones) 38679, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
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    More about this item

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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