A balance of questions: what can we ask of climate change economics?
The standard approach to the economics of climate change, which has its best known implementation in Nordhaus's DICE and RICE models (well described in Nordhaus's 2008 book, A Question of Balance) is not well equipped to deal with the possibility of catastrophe, since we are unable to evaluate a risk averse representative agent's expected utility when there is any significant probability of zero consumption. Whilst other authors attempt to develop new tools with which to address these problems, the simple solution proposed in this paper is to ask a question that the currently available tools of climate change economics are capable of answering. Rather than having agents optimally choosing a path (that divers from the recommendations of climate scientists) within models which cannot capture the essential features of the problem, I argue that economic models should be used to determine the savings and investment paths which implement climate targets that have been suggested in the physical science literature.
|Date of creation:||Jan 2013|
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- Masako Ikefuji & Roger J. A. Laeven & Jan R. Magnus & Chris Muris, 2011. "Weitzman meets Nordhaus: Expected utility and catastrophic risk in a stochastic economy-climate model," ISER Discussion Paper 0825, Institute of Social and Economic Research, Osaka University.
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- Millner, Antony, 2013. "On welfare frameworks and catastrophic climate risks," Journal of Environmental Economics and Management, Elsevier, vol. 65(2), pages 310-325. Full references (including those not matched with items on IDEAS)
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