A balance of questions: what can we ask of climate change economics?
AbstractThe standard approach to the economics of climate change, which has its best known implementation in Nordhaus's DICE and RICE models (well described in Nordhaus's 2008 book, A Question of Balance) is not well equipped to deal with the possibility of catastrophe, since we are unable to evaluate a risk averse representative agent's expected utility when there is any significant probability of zero consumption. Whilst other authors attempt to develop new tools with which to address these problems, the simple solution proposed in this paper is to ask a question that the currently available tools of climate change economics are capable of answering. Rather than having agents optimally choosing a path (that divers from the recommendations of climate scientists) within models which cannot capture the essential features of the problem, I argue that economic models should be used to determine the savings and investment paths which implement climate targets that have been suggested in the physical science literature.
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Bibliographic InfoPaper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 216.
Date of creation: 25 Jan 2013
Date of revision:
Climate Change; Catastrophe; Optimal Policy; Alternative Energy Investment;
Find related papers by JEL classification:
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-03 (All new papers)
- NEP-ENE-2013-02-03 (Energy Economics)
- NEP-ENV-2013-02-03 (Environmental Economics)
- NEP-HPE-2013-02-03 (History & Philosophy of Economics)
- NEP-RES-2013-02-03 (Resource Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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