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The Stern Review: A Deconstruction

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Author Info

  • Gary W. Yohe
  • Richard S.J. Tol

    () (Economic and Social Research Institute, Dublin)

Abstract

Using a simple model designed for transparency but nonetheless calibrated to support the much-quoted damage estimates of the Stern Review of the Economics of Climate Change, we demonstrate significant sensitivity of those results to assumptions about the pure rate of time preference, the discounting time horizon, rates of risk and equity aversion used to compute certainty- and equity equivalent annuities, and presumed static regional vulnerability. Manipulation of any of these parameters one at a time across reasonable ranges can diminish damage estimates by as much as 84% or, in the case of extending the time horizon, increase damage estimates by 900%. We also confirm the usual result that limiting atmospheric concentrations to specific benchmarks above 400 ppm cannot eliminate damages. Nonetheless, we applaud the Stern Review author team for reconfirming that the climate problem can productively be approached as an economic problem whose solutions can be explored with the tools of decision analysis.

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File URL: http://www.fnu.zmaw.de/fileadmin/fnu-files/publication/working-papers/sterngecwp.pdf
File Function: First version, 2007
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Bibliographic Info

Paper provided by Research unit Sustainability and Global Change, Hamburg University in its series Working Papers with number FNU-125.

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Length: 19 pages
Date of creation: Feb 2007
Date of revision: Feb 2007
Handle: RePEc:sgc:wpaper:125

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Related research

Keywords: economics of climate change; certainty equivalent and equity equivalent annuity; relative risk aversion; equity aversion; pure rate of time preference;

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References

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  1. Mirrlees, J. A. & Stern, N. H., 1972. "Fairly good plans," Journal of Economic Theory, Elsevier, vol. 4(2), pages 268-288, April.
  2. Raj Chetty, 2003. "A New Method of Estimating Risk Aversion," NBER Working Papers 9988, National Bureau of Economic Research, Inc.
  3. William D. Nordhaus, 2006. "The "Stern Review" on the Economics of Climate Change," NBER Working Papers 12741, National Bureau of Economic Research, Inc.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. What to do about climate change: looking beyond the discount rate controversy
    by Economic Logician in Economic Logic on 2012-11-29 14:53:00
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Cited by:
  1. Tanaka, Kenta & Managi, Shunsuke & Kondo, Katsunobu & Masuda, Kiyotaka & Yamamoto, Yasutaka, 2012. "Potential climate effects on Japanese rice productivity," MPRA Paper 35823, University Library of Munich, Germany.
  2. Dritan Osmani, . "A note on optimal transfer schemes, stable coalition for environmental protection and joint maximization assumption," Working Papers FNU-176, Research unit Sustainability and Global Change, Hamburg University.

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  1. Stern Review in Wikipedia (English)

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