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Infinite Uncertainty, Forgotten Feedbacks, And Cost-Benefit Analysis Of Climate Policy

Author

Listed:
  • Gary W. Yohe
  • Richard S.J. Tol

    () (Economic and Social Research Institute, Dublin)

Abstract

Tol (2003) found evidence that the uncertainty that surrounds estimates of the marginal damage of climate change may be infinite even if total damages are finite and questioned the applicability of expected cost-benefit analysis to global mitigation policy. Yohe (2003) suggested that this problem could be alleviated if international development aid were directed at eliminating the source of the problem – climate induced negative growth rates in a few regions along a handful of troublesome scenarios. The hypothesis about adding a second policy lever to the climate policy calculus is shown to hold, but not as robustly as perhaps expected. Infinite uncertainty and its implications for global mitigation policy can be avoided for a reasonable price in the relatively unlikely event that climate change can cause negative economic growth in a region or two when the portfolio of international policies includes at least two tools.

Suggested Citation

  • Gary W. Yohe & Richard S.J. Tol, 2005. "Infinite Uncertainty, Forgotten Feedbacks, And Cost-Benefit Analysis Of Climate Policy," Working Papers FNU-83, Research unit Sustainability and Global Change, Hamburg University, revised Aug 2005.
  • Handle: RePEc:sgc:wpaper:83
    as

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    File URL: http://www.fnu.zmaw.de/fileadmin/fnu-files/publication/working-papers/maxuncaidwp.pdf
    File Function: First version, 2005
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    References listed on IDEAS

    as
    1. repec:spr:portec:v:3:y:2004:i:2:d:10.1007_s10258-004-0033-z is not listed on IDEAS
    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, vol. 21(2), pages 135-160, February.
    3. Tol, Richard S. J., 2002. "Welfare specifications and optimal control of climate change: an application of fund," Energy Economics, Elsevier, vol. 24(4), pages 367-376, July.
    4. Tol, Richard S. J., 1996. "The damage costs of climate change towards a dynamic representation," Ecological Economics, Elsevier, vol. 19(1), pages 67-90, October.
    5. P. Michael Link & Richard S. J. Tol, 2004. "Possible economic impacts of a shutdown of the thermohaline circulation: an application of FUND," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 3(2), pages 99-114, September.
    6. Richard Tol, 1999. "Spatial and Temporal Efficiency in Climate Policy: Applications of FUND," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 14(1), pages 33-49, July.
    7. Richard Tol, 2002. "Estimates of the Damage Costs of Climate Change. Part 1: Benchmark Estimates," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 21(1), pages 47-73, January.
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    Cited by:

    1. Richard S. J. Tol, 2009. "The Economic Effects of Climate Change," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 29-51, Spring.

    More about this item

    Keywords

    climate policy; development aid; equity weighting; expected cost-benefit analysis;

    JEL classification:

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

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