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Additive Damages, Fat-Tailed Climate Dynamics, and Uncertain Discounting

In: The Economics of Climate Change: Adaptations Past and Present

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  • Martin L. Weitzman

Abstract

This paper in applied theory argues that there is a loose chain of reasoning connecting the following three basic links in the economics of climate change: 1) additive disutility damages may be appropriate for analyzing some impacts of global warming; 2) an uncertain feedback-forcing coefficient, which might be near one with infinitesimal probability, can cause the distribution of the future time trajectory of global temperatures to have fat tails and a high variance; 3) when high-variance additive damages are discounted at an uncertain rate of pure time preference, which might be near zero with infinitesimal probability, it can make expected present discounted disutility very large. Some possible implications for welfare analysis and climate-change policy are briefly noted.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • 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.
    • Handle: RePEc:nbr:nberch:11981
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    References listed on IDEAS

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    1. 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.
    2. Partha Dasgupta, 2007. "Commentary: The Stern Review's Economics of Climate Change," National Institute Economic Review, National Institute of Economic and Social Research, vol. 199(1), pages 4-7, January.
    3. Dieter Lüthi & Martine Le Floch & Bernhard Bereiter & Thomas Blunier & Jean-Marc Barnola & Urs Siegenthaler & Dominique Raynaud & Jean Jouzel & Hubertus Fischer & Kenji Kawamura & Thomas F. Stocker, 2008. "High-resolution carbon dioxide concentration record 650,000–800,000 years before present," Nature, Nature, vol. 453(7193), pages 379-382, May.
    4. Thomas Sterner & U. Martin Persson, 2008. "An Even Sterner Review: Introducing Relative Prices into the Discounting Debate," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 2(1), pages 61-76, Winter.
    5. Stern,Nicholas, 2007. "The Economics of Climate Change," Cambridge Books, Cambridge University Press, number 9780521700801.
    6. Martin L. Weitzman, 2001. "Gamma Discounting," American Economic Review, American Economic Association, vol. 91(1), pages 260-271, March.
    7. Weitzman, Martin L., 1998. "Why the Far-Distant Future Should Be Discounted at Its Lowest Possible Rate," Journal of Environmental Economics and Management, Elsevier, vol. 36(3), pages 201-208, November.
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    More about this item

    JEL classification:

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

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