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Revisiting Fat-Tailed Uncertainty in the Economics of Climate Change

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  • Weitzman, Martin L.

Abstract

In this article, I revisit some basic issues concerning structural uncertainty and catastrophic climate change. My target audience here are general economists, so this article could also be viewed as a somewhat less technical exposition that supplements my previous work. Using empirical examples, I argue that it is implausible that low-probability, high-negative impact events would not much influence an economic analysis of climate change. I then try to integrate the empirical examples and the theory together into a unified package with a unified message that the possibility of catastrophic climate change needs to be taken seriously.

Suggested Citation

  • Weitzman, Martin L., 2011. "Revisiting Fat-Tailed Uncertainty in the Economics of Climate Change," Scholarly Articles 11130443, Harvard University Department of Economics.
    • Handle: RePEc:hrv:faseco:11130443
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    File URL: http://dash.harvard.edu/bitstream/handle/1/11130443/61_REEP%20final%20fat.pdf
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    References listed on IDEAS

    as
    1. Weitzman, Martin L., 2010. "Risk-adjusted gamma discounting," Journal of Environmental Economics and Management, Elsevier, vol. 60(1), pages 1-13, July.
    2. 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.
    3. Martin L. Weitzman, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 703-724, September.
    4. 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.
    5. 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.
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    Cited by:

    1. Kent D. Daniel & Robert B. Litterman & Gernot Wagner, 2016. "Applying Asset Pricing Theory to Calibrate the Price of Climate Risk," NBER Working Papers 22795, National Bureau of Economic Research, Inc.
    2. Pindyck, Robert S., 2019. "The social cost of carbon revisited," Journal of Environmental Economics and Management, Elsevier, vol. 94(C), pages 140-160.
    3. Chambers, Robert G. & Melkonyan, Tigran, 2017. "Ambiguity, reasoned determination, and climate-change policy," Journal of Environmental Economics and Management, Elsevier, vol. 81(C), pages 74-92.
    4. Kelly, David L. & Tan, Zhuo, 2015. "Learning and climate feedbacks: Optimal climate insurance and fat tails," Journal of Environmental Economics and Management, Elsevier, vol. 72(C), pages 98-122.
    5. Marshall Burke & Melanie Craxton & Charles D. Kolstad & Chikara Onda, 2016. "Some Research Challenges In The Economics Of Climate Change," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 7(02), pages 1-14, May.

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