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Modeling the Impact of Warming in Climate Change Economics

In: The Economics of Climate Change: Adaptations Past and Present

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  • Robert S. Pindyck

Abstract

Any economic analysis of climate change policy requires some model that describes the impact of warming on future GDP and consumption. Most integrated assessment models (IAMs) relate temperature to the level of real GDP and consumption, but there are theoretical and empirical reasons to expect temperature to affect the growth rate rather than level of GDP. Does this distinction matter in terms of implications for policy? And how does the answer depend on the nature and extent of uncertainty over future temperature change and its impact? I address these questions by estimating the fraction of consumption society would be willing to sacrifice to limit future increases in temperature, using probability distributions for temperature and impact inferred from studies assembled by the IPCC, and comparing estimates based on a direct versus growth rate impact of temperature on GDP.
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Suggested Citation

  • Robert S. Pindyck, 2011. "Modeling the Impact of Warming in Climate Change Economics," NBER Chapters,in: The Economics of Climate Change: Adaptations Past and Present, pages 47-71 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:11982
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    References listed on IDEAS

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    1. Stavins, Robert, 2004. "Environmental Economics," Discussion Papers dp-04-54, Resources For the Future.
    2. Richard Tol, 2002. "Estimates of the Damage Costs of Climate Change, Part II. Dynamic Estimates," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, pages 135-160.
    3. 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.
    4. Richard S. J. Tol, 2010. "The Economic Impact of Climate Change," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 11(s1), pages 13-37, May.
    5. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2009. "Temperature and Income: Reconciling New Cross-Sectional and Panel Estimates," American Economic Review, American Economic Association, pages 198-204.
    6. Pindyck, Robert S., 2012. "Uncertain outcomes and climate change policy," Journal of Environmental Economics and Management, Elsevier, vol. 63(3), pages 289-303.
    7. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2009. "Temperature and Income: Reconciling New Cross-Sectional and Panel Estimates," American Economic Review, American Economic Association, pages 198-204.
    8. Richard S. J. Tol, 2009. "The Economic Effects of Climate Change," Journal of Economic Perspectives, American Economic Association, pages 29-51.
    9. William D. Nordhaus, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, pages 686-702.
    10. Robert Mendelsohn, 2008. "Is the Stern Review an Economic Analysis?," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, pages 45-60.
    11. Martin L. Weitzman, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, pages 703-724.
    12. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2008. "Climate Change and Economic Growth: Evidence from the Last Half Century," NBER Working Papers 14132, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Riccardo Colacito & Bridget Hoffmann & Toan Phan, 2016. "Temperature and Growth: A Panel Analysis of the United States," IDB Publications (Working Papers) 7654, Inter-American Development Bank.
    2. Prasenjit Banerjee & Jason F. Shogren, 2013. "Climate Change: Risk, Reputation, and Mechanism Design," The School of Economics Discussion Paper Series 1303, Economics, The University of Manchester.
    3. Pindyck, Robert S., 2012. "Uncertain outcomes and climate change policy," Journal of Environmental Economics and Management, Elsevier, vol. 63(3), pages 289-303.
    4. Robert S. Pindyck, 2011. "Fat Tails, Thin Tails, and Climate Change Policy," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, pages 258-274.
    5. Christian Traeger, 2014. "Why uncertainty matters: discounting under intertemporal risk aversion and ambiguity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 627-664.
    6. Gary D. Libecap, 2010. "Institutional Path Dependence in Climate Adaptation: Coman's "Some Unsettled Problems of Irrigation"," NBER Working Papers 16324, National Bureau of Economic Research, Inc.
    7. Rajnish Mehra, 2013. "Asset Pricing Implications of Macroeconomic Interventions An Application to Climate Policy," NBER Working Papers 19146, National Bureau of Economic Research, Inc.
    8. Robert S. Pindyck, 2017. "The Use and Misuse of Models for Climate Policy," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, pages 100-114.
    9. Riccardo Colacito & Bridget Hoffmann & Toan Phan, 2016. "Temperature and Growth: A Panel Analysis of the United States," IDB Publications (Working Papers) 94298, Inter-American Development Bank.

    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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