Additive Damages, Fat-Tailed Climate Dynamics, and Uncertain Discounting
AbstractThis paper in applied theory argues that there is a loose chain of reasoning connecting the following three basic links in the economics of climate change: 1) additive damages may be more appropriate for analyzing the impacts of global warming than multiplicative damages; 2) an uncertain feedback-forcing coefficient, which might be near one with infinitesimal probability, can cause the distribution of the future time trajectory of global temperatures to have fat tails and a high variance; 3) when highvariance additive damages are discounted at an uncertain rate of pure time preference, which might be near zero with infinitesimal probability, it can make expected present discounted disutility very large. Some possible implications for welfare analysis and climate-change policy are briefly noted. --
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2009-26.
Date of creation: 2009
Date of revision:
Climate change; fat tails;
Other versions of this item:
- Weitzman, Martin L., 2009. "Additive damages, fat-tailed climate dynamics, and uncertain discounting," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 3(39), pages 1-29.
- Martin L. Weitzman, 2011. "Additive Damages, Fat-Tailed Climate Dynamics, and Uncertain Discounting," NBER Chapters, in: The Economics of Climate Change: Adaptations Past and Present, pages 23-46 National Bureau of Economic Research, Inc.
- 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-2009-07-28 (All new papers)
- NEP-ENE-2009-07-28 (Energy Economics)
- NEP-ENV-2009-07-28 (Environmental Economics)
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.:
- Partha Dasgupta, 2007. "The Stern Review's economics of climate change," National Institute Economic Review, National Institute of Economic and Social Research, vol. 199(1), pages 4-7, January.
- 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.
- Sterner, Thomas & Persson, U. Martin, 2007.
"An Even Sterner Review: Introducing Relative Prices into the Discounting Debate,"
dp-07-37, Resources For the Future.
- 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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