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On Modeling and Interpreting the Economics of Catastrophic Climate Change

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  • Martin L. Weitzman

    (Department of Economics, Harvard University)

Abstract

With climate change as prototype example, this paper analyzes the implications of structural uncertainty for the economics of low-probability, high-impact catastrophes. Even when updated by Bayesian learning, uncertain structural parameters induce a critical "tail fattening" of posterior-predictive distributions. Such fattened tails have strong implications for situations, like climate change, where a catastrophe is theoretically possible because prior knowledge cannot place sufficiently narrow bounds on overall damages. This paper shows that the economic consequences of fat-tailed structural uncertainty (along with unsureness about high-temperature damages) can readily outweigh the effects of discounting in climate-change policy analysis. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/rest.91.1.1
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Bibliographic Info

Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 91 (2009)
Issue (Month): 1 (February)
Pages: 1-19

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Handle: RePEc:tpr:restat:v:91:y:2009:i:1:p:1-19

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  1. Scott Barrett, 2008. "The Incredible Economics of Geoengineering," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 39(1), pages 45-54, January.
  2. Fran├žois Bellavance & Georges Dionne & Martin Lebeau, 2006. "The Value of a Statistical Life: a Meta-Analysis with a Mixed Effects Regression Model," Cahiers de recherche 0646, CIRPEE.
  3. Richard S.J. Tol, 2000. "Is the Uncertainty about Climate Change Too Large for Expected Cost-Benefit Analysis?," Working Papers FNU-3, Research unit Sustainability and Global Change, Hamburg University, revised Sep 2000.
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As found on the RePEc Biblio, the curated bibliography for Economics:
  1. > Environmental and Natural Resource Economics > Climate economics
  2. > Environmental and Natural Resource Economics > Climate economics > Discounting, equity, uncertainty
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