Fat tails, exponents, extreme uncertainty: Simulating catastrophe in DICE
The problem of low-probability, catastrophic risk is increasingly central to discussion of climate science and policy. But the integrated assessment models (IAMs) of climate economics rarely incorporate this possibility. What modifications are needed to analyze catastrophic economic risks in an IAM? We explore this question using DICE, a well-known IAM. We examine the implications of a fat-tailed probability distribution for the climate sensitivity parameter, a focus of recent work by Martin Weitzman, and the shape of the damage function, one of the issues raised by the Stern Review. Forecasts of disastrous economic outcomes in DICE can result from the interaction of these two innovations, but not from either one alone.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Ackerman, Frank & Stanton, Elizabeth A. & Hope, Chris & Alberth, Stephane, 2009. "Did the Stern Review underestimate US and global climate damages?," Energy Policy, Elsevier, vol. 37(7), pages 2717-2721, July.
- Roughgarden, Tim & Schneider, Stephen H., 1999. "Climate change policy: quantifying uncertainties for damages and optimal carbon taxes," Energy Policy, Elsevier, vol. 27(7), pages 415-429, July.
- Simon Dietz & Chris Hope & Nicholas Stern & Dimitri Zenghelis, 2007. "REFLECTIONS ON THE STERN REVIEW (1) A Robust Case for Strong Action to Reduce the Risks of Climate Change," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 8(1), pages 121-168, January.
- Stephen Newbold & Adam Daigneault, 2009. "Climate Response Uncertainty and the Benefits of Greenhouse Gas Emissions Reductions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 44(3), pages 351-377, November.
- Martin L. Weitzman, 2009.
"On Modeling and Interpreting the Economics of Catastrophic Climate Change,"
The Review of Economics and Statistics,
MIT Press, vol. 91(1), pages 1-19, February.
- Weitzman, Martin L., 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," Scholarly Articles 3693423, Harvard University Department of Economics.
- 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.
- Adam Daigneault & Steve Newbold, 2009. "Climate Response Uncertainty and the Unexpected Benefits of Greenhouse Gas Emissions Reductions," NCEE Working Paper Series 200806, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Mar 2009.
- 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.
- Martin L. Weitzman, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 703-724, September.
When requesting a correction, please mention this item's handle: RePEc:eee:ecolec:v:69:y:2010:i:8:p:1657-1665. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.