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Comparing Alternative Policies Against Environmental Catastrophes

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  • Besley, Timothy J.
  • Dixit, Avinash K.

Abstract

We construct a model with three features important in the context of major environmental catastrophes: (1) the distribution of possible damage has a fat tail, (2) the probability of the catastrophic event increases as greenhouse gases accumulate, (3) a technological solution may emerge making conservation efforts unnecessary. We solve the model numerically for plausible values of the parameters, and evaluate the tradeoffs between alternative policies such as prevention, mitigation, and technological fixes.

Suggested Citation

  • Besley, Timothy J. & Dixit, Avinash K., 2017. "Comparing Alternative Policies Against Environmental Catastrophes," CEPR Discussion Papers 11802, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11802
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    References listed on IDEAS

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    1. Xepapadeas, Anastasios, 2005. "Economic growth and the environment," Handbook of Environmental Economics,in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 3, chapter 23, pages 1219-1271 Elsevier.
    2. Simon Dietz, 2011. "High impact, low probability? An empirical analysis of risk in the economics of climate change," Climatic Change, Springer, vol. 108(3), pages 519-541, October.
    3. Antony Millner, 2013. "On Welfare Frameworks and Catastrophic Climate Risks," CESifo Working Paper Series 4442, CESifo Group Munich.
    4. Millner, Antony, 2013. "On welfare frameworks and catastrophic climate risks," Journal of Environmental Economics and Management, Elsevier, vol. 65(2), pages 310-325.
    5. Robert J. Barro, 2015. "Environmental Protection, Rare Disasters and Discount Rates," Economica, London School of Economics and Political Science, vol. 82(325), pages 1-23, January.
    6. Ian W. R. Martin & Robert S. Pindyck, 2015. "Averting Catastrophes: The Strange Economics of Scylla and Charybdis," American Economic Review, American Economic Association, vol. 105(10), pages 2947-2985, October.
    7. Robert S. Pindyck, 2011. "Fat Tails, Thin Tails, and Climate Change Policy," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(2), pages 258-274, Summer.
    8. Dietz, Simon, 2011. "High impact, low probability?: an empirical analysis of risk in the economics of climate change," LSE Research Online Documents on Economics 38586, London School of Economics and Political Science, LSE Library.
    9. Kolstad, Charles D., 1996. "Fundamental irreversibilities in stock externalities," Journal of Public Economics, Elsevier, vol. 60(2), pages 221-233, May.
    10. Gilbert E. Metcalf & James Stock, 2015. "The Role of Integrated Assessment Models in Climate Policy: A User's Guide and Assessment," Discussion Papers Series, Department of Economics, Tufts University 0811, Department of Economics, Tufts University.
    11. 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.
    12. Brito, Dagobert L. & Intriligator, Michael D., 1987. "Stock externalities, Pigovian taxation and dynamic stability," Journal of Public Economics, Elsevier, vol. 33(1), pages 59-72, June.
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    Cited by:

    1. Vislie, Jon, 2017. "Resource Extraction and Uncertain Tipping Points," Memorandum 03/2017, Oslo University, Department of Economics.

    More about this item

    Keywords

    catastrophic risk; climate change;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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