On Modeling and Interpreting the Economics of Catastrophic Climate Change
With climate change as prototype example, this paper analyzes the implications of structural uncertainty for the economics of low-probability, high-impact catastrophes. Even when updated by Bayesian learning, uncertain structural parameters induce a critical "tail fattening" of posterior-predictive distributions. Such fattened tails have strong implications for situations, like climate change, where a catastrophe is theoretically possible because prior knowledge cannot place sufficiently narrow bounds on overall damages. This paper shows that the economic consequences of fat-tailed structural uncertainty (along with unsureness about high-temperature damages) can readily outweigh the effects of discounting in climate-change policy analysis. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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Volume (Year): 91 (2009)
Issue (Month): 1 (February)
Pages: 1-19
| Handle: | RePEc:tpr:restat:v:91:y:2009:i:1:p:1-19 |
| Contact details of provider: | Web page: http://mitpress.mit.edu/journals/
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| Order Information: | Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535 |
References listed on IDEAS
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- Bellavance, Franois & Dionne, Georges & Lebeau, Martin, 2009.
"The value of a statistical life: A meta-analysis with a mixed effects regression model,"
Journal of Health Economics,
Elsevier, vol. 28(2), pages 444-464, March.
- François Bellavance & Georges Dionne & Martin Lebeau, 2006. "The Value of a Statistical Life: a Meta-Analysis with a Mixed Effects Regression Model," Cahiers de recherche 0646, CIRPEE.
- Robert E. Hall & Charles I. Jones, 2007. "The Value of Life and the Rise in Health Spending," The Quarterly Journal of Economics, Oxford University Press, vol. 122(1), pages 39-72.
- Richard S.J. Tol, 2000. "Is the Uncertainty about Climate Change Too Large for Expected Cost-Benefit Analysis?," Working Papers FNU-3, Research unit Sustainability and Global Change, Hamburg University, revised Sep 2000.
- Scott Barrett, 2008. "The Incredible Economics of Geoengineering," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 39(1), pages 45-54, January. Full references (including those not matched with items on IDEAS)
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