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Infinite Uncertainty, Forgotten Feedbacks, And Cost-Benefit Analysis Of Climate Policy

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Author Info

  • Richard S.J. Tol

    (Engineering and Public Policy, Carnegie Mellon University)

  • Gary W. Yohe

    ()
    (Economics Department, Wesleyan University)

Abstract

Tol (2003) found evidence that the uncertainty that surrounds estimates of the marginal damage of climate change may be infinite even if total damages are finite and questioned the applicability of expected cost-benefit analysis to global mitigation policy. Yohe (2003) suggested that this problem could be alleviated if international development aid were directed at eliminating the source of the problem – climate induced negative growth rates in a few regions along a handful of troublesome scenarios. The hypothesis about adding a second policy lever to the climate policy calculus is shown to hold, but not as robustly as perhaps expected. Infinite uncertainty and its implications for global mitigation policy can be avoided for a reasonable price in the relatively unlikely event that climate change can cause negative economic growth in a region or two when the portfolio of international policies includes at least two tools.

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Bibliographic Info

Paper provided by Wesleyan University, Department of Economics in its series Wesleyan Economics Working Papers with number 2005-003.

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Length: 14 pages
Date of creation: Aug 2005
Date of revision:
Handle: RePEc:wes:weswpa:2005-003

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Keywords: climate policy; development aid; equity weighting; expected cost-benefit analysis;

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  1. P. Michael Link & Richard S.J. Tol, 2004. "Possible Economic Impacts of a Shutdown of the Thermohaline Circulation: an Application of FUND," Working Papers FNU-42, Research unit Sustainability and Global Change, Hamburg University, revised Apr 2004.
  2. Richard Tol, 2002. "Estimates of the Damage Costs of Climate Change, Part II. Dynamic Estimates," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 21(2), pages 135-160, February.
  3. Tol, Richard S. J., 1996. "The damage costs of climate change towards a dynamic representation," Ecological Economics, Elsevier, vol. 19(1), pages 67-90, October.
  4. Tol, Richard S. J., 2002. "Welfare specifications and optimal control of climate change: an application of fund," Energy Economics, Elsevier, vol. 24(4), pages 367-376, July.
  5. Richard Tol, 2002. "Estimates of the Damage Costs of Climate Change. Part 1: Benchmark Estimates," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 21(1), pages 47-73, January.
  6. Richard Tol, 1999. "Spatial and Temporal Efficiency in Climate Policy: Applications of FUND," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 14(1), pages 33-49, July.
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Cited by:
  1. Richard S. J. Tol, 2009. "The Economic Effects of Climate Change," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 29-51, Spring.

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