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A Review of the Stern Review on the Economics of Climate Change

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  • William D. Nordhaus

Abstract

How much and how fast should we react to the threat of global warming? The Stern Review argues that the damages from climate change are large, and that nations should undertake sharp and immediate reductions in greenhouse gas emissions. An examination of the Review 's radical revision of the economics of climate change finds, however, that it depends decisively on the assumption of a near-zero time discount rate combined with a specific utility function. The Review 's unambiguous conclusions about the need for extreme immediate action will not survive the substitution of assumptions that are consistent with today's marketplace real interest rates and savings rates.

Suggested Citation

  • William D. Nordhaus, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 686-702, September.
  • Handle: RePEc:aea:jeclit:v:45:y:2007:i:3:p:686-702 Note: DOI: 10.1257/jel.45.3.686
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    References listed on IDEAS

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    1. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
    2. William R. Cline, 1992. "Economics of Global Warming, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 39.
    3. David Cass, 1965. "Optimum Growth in an Aggregative Model of Capital Accumulation," Review of Economic Studies, Oxford University Press, vol. 32(3), pages 233-240.
    4. E. S. Phelps & R. A. Pollak, 1968. "On Second-Best National Saving and Game-Equilibrium Growth," Review of Economic Studies, Oxford University Press, vol. 35(2), pages 185-199.
    5. Sir Ian Byatt & Bob Carter & Ian Castles & Chris de Freitas & Indur M. Goklany & David Henderson & David Holland & Lord Lawson of Blaby & Richard S. Lindzen & Ross McKitrick & Julian Morris & Sir Alan, 2006. "The Stern Review: A Dual Critique," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 7(4), pages 165-232, October.
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