Focusing on tail effects, I incorporate distributions for temperature change and its economic impact in an analysis of climate change policy. I estimate the fraction of consumption w*(tau) that society would be willing to sacrifice to ensure that any increase in temperature at a future point is limited to tau. Using information on the distributions for temperature change and economic impact from studies assembled by the IPCC and from “integrated assessment models” (IAMs), I fit displaced gamma distributions for these variables. Unlike existing IAMs, I model economic impact as a relationship between temperature change and the growth rate of GDP as opposed to its level, so that warming has a permanent impact on future GDP. The fitted distributions for temperature change and economic impact generally yield values of w*(tau) below 2%, even for small values of tau, unless one assumes extreme parameter values and/or substantial shifts in the temperature distribution. These results are consistent with moderate abatement policies.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
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Length: Date of creation: Aug 2009 Date of revision: Handle: RePEc:nbr:nberwo:15259
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Find related papers by JEL classification: D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty 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
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"The Green Solow Model,"
NBER Working Papers
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