What Is The "Damages Function" For Global Warming — And What Difference Might It Make?
The existing literature on climate change offers little guidance on why one specification or another of a "damages function" has been selected. Ideally, one wants a functional form that captures reality adequately, yet is analytically sufficiently tractable to yield useful results. This paper gives two plausible risk aversion axioms that a reduced form utility function of temperature change and the capacity to produce consumption might reasonably be required to satisfy. These axioms indicate that the standard-practice multiplicative specification of disutility damages from global warming, as well as its additive analogue, are special cases of this paper's theoretically derived utility function. Empirically, the paper gives some numerical examples demonstrating the surprisingly strong implications for economic policy of the distinction between additive and multiplicative disutility damages.
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Volume (Year): 01 (2010)
Issue (Month): 01 ()
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- Thomas Sterner & U. Martin Persson, 2008. "An Even Sterner Review: Introducing Relative Prices into the Discounting Debate," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 2(1), pages 61-76, Winter.
- Weitzman, Martin L., 2009.
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9639963, Harvard University Department of Economics.
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- Martin L. Weitzman, 2011. "Additive Damages, Fat-Tailed Climate Dynamics, and Uncertain Discounting," NBER Chapters, in: The Economics of Climate Change: Adaptations Past and Present, pages 23-46 National Bureau of Economic Research, Inc.
- Weitzman, Martin L., 2009. "Additive Damages, Fat-Tailed Climate Dynamics, and Uncertain Discounting," Economics Discussion Papers 2009-26, Kiel Institute for the World Economy.
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