The Stern Review: A Deconstruction
AbstractUsing 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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Bibliographic InfoPaper provided by Research unit Sustainability and Global Change, Hamburg University in its series Working Papers with number FNU-125.
Length: 19 pages
Date of creation: Feb 2007
Date of revision: Feb 2007
economics of climate change; certainty equivalent and equity equivalent annuity; relative risk aversion; equity aversion; pure rate of time preference;
Other versions of this item:
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-17 (All new papers)
- NEP-ENE-2007-03-17 (Energy Economics)
- NEP-ENV-2007-03-17 (Environmental Economics)
- NEP-UPT-2007-03-17 (Utility Models & Prospect Theory)
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.:
- Raj Chetty, 2006.
"A New Method of Estimating Risk Aversion,"
American Economic Review,
American Economic Association, vol. 96(5), pages 1821-1834, December.
- Mirrlees, J. A. & Stern, N. H., 1972. "Fairly good plans," Journal of Economic Theory, Elsevier, vol. 4(2), pages 268-288, April.
- William D. Nordhaus, 2006. "The "Stern Review" on the Economics of Climate Change," NBER Working Papers 12741, National Bureau of Economic Research, Inc.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- 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
- Kenta Tanaka & Shunsuke Managi & Katsunobu Kondo & Kiyotaka Masuda & Yasutaka Yamamoto, 2011.
"Potential Climate Effect On Japanese Rice Productivity,"
Climate Change Economics (CCE),
World Scientific Publishing Co. Pte. Ltd., vol. 2(03), pages 237-255.
- 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.
- 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.
- Stern Review in Wikipedia (English)
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