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Modeling the Impact of Warming in Climate Change Economics

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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.

Suggested Citation

  • Robert S. Pindyck, 2010. "Modeling the Impact of Warming in Climate Change Economics," NBER Working Papers 15692, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:15692
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    1. Stern,Nicholas, 2007. "The Economics of Climate Change," Cambridge Books, Cambridge University Press, number 9780521700801, August.
    2. Stavins, Robert, 2004. "Environmental Economics," Discussion Papers dp-04-54, Resources For the Future.
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    7. Pindyck, Robert S., 2012. "Uncertain outcomes and climate change policy," Journal of Environmental Economics and Management, Elsevier, vol. 63(3), pages 289-303.
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    Cited by:

    1. Pindyck, Robert S., 2019. "The social cost of carbon revisited," Journal of Environmental Economics and Management, Elsevier, vol. 94(C), pages 140-160.
    2. Hambel, Christoph & Kraft, Holger & Schwartz, Eduardo, 2021. "Optimal carbon abatement in a stochastic equilibrium model with climate change," European Economic Review, Elsevier, vol. 132(C).
    3. Riccardo Colacito & Bridget Hoffmann & Toan Phan, 2019. "Temperature and Growth: A Panel Analysis of the United States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(2-3), pages 313-368, March.
    4. Pindyck, Robert S., 2012. "Uncertain outcomes and climate change policy," Journal of Environmental Economics and Management, Elsevier, vol. 63(3), pages 289-303.
    5. 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.
    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, vol. 11(1), pages 100-114.
    9. Jules Sadefo Kamdem & David Akame, 2020. "Willingness To Pay Of An Expo-Power Utility Decision Maker To Limit Climate Change," Working Papers hal-02465195, HAL.
    10. Prasenjit Banerjee & Jason F. Shogren, 2013. "Climate Change: Risk, Reputation, and Mechanism Design," Economics Discussion Paper Series 1303, Economics, The University of Manchester.
    11. Christian Traeger, 2014. "Why uncertainty matters: discounting under intertemporal risk aversion and ambiguity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 56(3), pages 627-664, August.
    12. 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.

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    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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