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A Precautionary Tale of Uncertain Tail Fattening

  • Martin Weitzman

    ()

Suppose that there is a probability density function for how bad things might get, but that the overall rate at which this probability density function slims down to approach zero in the tail is uncertain. The paper shows how a basic precautionary principle of tail fattening could then apply. The worse is the contemplated damage, the more should a decision maker consider the bad tail to be among the relatively fatter-tailed possibilities. A rough numerical example is applied to the uncertain tail distribution of climate sensitivity. Copyright Springer Science+Business Media Dordrecht 2013

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File URL: http://hdl.handle.net/10.1007/s10640-013-9646-y
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Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 55 (2013)
Issue (Month): 2 (June)
Pages: 159-173

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Handle: RePEc:kap:enreec:v:55:y:2013:i:2:p:159-173
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100263

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  1. Weitzman, Martin L., 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," Scholarly Articles 3693423, Harvard University Department of Economics.
  2. Antony Millner & Simon Dietz & Geoffrey Heal, 2010. "Ambiguity and climate policy," GRI Working Papers 24, Grantham Research Institute on Climate Change and the Environment.
  3. Claude Henry & Marc Henry, 2002. "Formalization and applications of the precautionary principles," Discussion Papers 0102-22, Columbia University, Department of Economics.
  4. Claude HENRY & Marc HENRY, 2002. "Formalization and Applications of the Precuationary Principle," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002009, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  5. Martin L. Weitzman, 2011. "Fat-Tailed Uncertainty in the Economics of Catastrophic Climate Change," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(2), pages 275-292, Summer.
  6. Johanna Etner & Meglena Jeleva & Jean‐Marc Tallon, 2012. "Decision Theory Under Ambiguity," Journal of Economic Surveys, Wiley Blackwell, vol. 26(2), pages 234-270, 04.
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