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

Author

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  • 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.

Suggested Citation

  • Richard S.J. Tol & Gary W. Yohe, 2005. "Infinite Uncertainty, Forgotten Feedbacks, And Cost-Benefit Analysis Of Climate Policy," Wesleyan Economics Working Papers 2005-003, Wesleyan University, Department of Economics.
    • Handle: RePEc:wes:weswpa:2005-003
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    File URL: http://repec.wesleyan.edu/pdf/gyohe/2005003_yohe.pdf
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    References listed on IDEAS

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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," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 3(2), pages 99-114, September.
    2. Richard Tol, 2002. "Estimates of the Damage Costs of Climate Change, Part II. Dynamic Estimates," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 21(2), pages 135-160, February.
    3. 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.
    4. William R. Cline, 1992. "Economics of Global Warming, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 39.
    5. 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.
    6. Richard Tol, 1999. "Spatial and Temporal Efficiency in Climate Policy: Applications of FUND," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 14(1), pages 33-49, July.
    7. Richard Tol, 2002. "Estimates of the Damage Costs of Climate Change. Part 1: Benchmark Estimates," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 21(1), pages 47-73, January.
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    Cited by:

    1. Tol, Richard S.J. & Yohe, Gary W., 2009. "The Stern Review: A deconstruction," Energy Policy, Elsevier, vol. 37(3), pages 1032-1040, March.
    2. Richard S.J. Tol, 2008. "Why Worry about Climate Change? A Research Agenda," Environmental Values, , vol. 17(4), pages 437-470, November.
    3. 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.
    4. Laurien , Finn & Keating, Adriana, 2019. "Evidence from Measuring Community Flood Resilience in Asia," ADB Economics Working Paper Series 595, Asian Development Bank.

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    More about this item

    Keywords

    climate policy; development aid; equity weighting; expected cost-benefit analysis;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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