Person: Weitzman, Martin
Loading...
Email Address
AA Acceptance Date
Birth Date
Research Projects
Organizational Units
Job Title
Last Name
Weitzman
First Name
Martin
Name
Weitzman, Martin
26 results
Search Results
Now showing 1 - 10 of 26
Publication Voting on Prices vs. Voting on Quantities in a World Climate Assembly(2015) Weitzman, MartinThis paper posits the conceptually useful allegory of a futuristic "World Climate Assembly" that votes on global carbon emissions via the basic principle of majority rule. Two variants are considered. One is to vote on a universal price (or tax) that is internationally harmonized, but the proceeds from which are domestically retained. The other is to vote on the overall quantity of total worldwide emissions, which are then distributed for free (via a pre-decided fractional subdivision formula) as individual allowance permits that are subsequently marketed in an international cap-and-trade system. The model of the paper suggests that the majority-voted price is likely to be less distortionary and easier to enact than the majority-voted total quantity of permits. While the study is centered on a formal model, the tone of the policy discussion resembles more an exploratory think piece.Publication Should Governments Use a Declining Discount Rate in Project Analysis?(Oxford University Press (OUP), 2014) Arrow, Kenneth J.; Cropper, Maureen L.; Gollier, Christian; Groom, Ben; Heal, Geoffrey M.; Newell, Richard G.; Nordhaus, William D.; Pindyck, Robert; Pizer, William A.; Portney, Paul R.; Sterner, Thomas; Tol, Richard S. J.; Weitzman, MartinShould governments use a discount rate that declines over time when evaluating the future benefits and costs of public projects? The argument for using a declining discount rate (DDR) is simple: if the discount rates that will be applied in the future are uncertain but positively correlated, and if the analyst can assign probabilities to these discount rates, then the result will be a declining schedule of certainty-equivalent discount rates. There is a growing empirical literature that estimates models of long-term interest rates and uses them to forecast the DDR schedule. However, this literature has been criticized because it lacks a connection to the theory of project evaluation. In benefit-cost analysis, the net benefits of a project in year t (in consumption units) are discounted to the present at the rate at which society would trade consumption in year t for consumption in the present. With simplifying assumptions, this leads to the Ramsey discounting formula, which results in a declining certainty-equivalent discount rate if the rate of growth in consumption is uncertain and if shocks to consumption are correlated over time. We conclude that the arguments in favor of a DDR are compelling and thus merit serious consideration by regulatory agencies in the United States.Publication Fat Tails and the Social Cost of Carbon(American Economic Association, 2014) Weitzman, MartinAt high enough greenhouse gas concentrations, climate change might conceivably cause catastrophic damages with small but non-negligible probabilities. If the bad tail of climate damages is sufficiently fat, and if the coefficient of relative risk aversion is greater than one, the catastrophe-reducing insurance aspect of mitigation investments could in theory have a strong influence on raising the social cost of carbon. In this paper I exposit the influence of fat tails on climate change economics in a simple stark formulation focused on the social cost of carbon. I then attempt to place the basic underlying issues within a balanced perspective.Publication Can Negotiating a Uniform Carbon Price Help to Internalize the Global Warming Externality?(University of Chicago Press, 2014) Weitzman, MartinIt is difficult to resolve the global warming free-rider externality problem by negotiating n different quantity targets. By contrast, negotiating a single internationally binding minimum carbon price (the proceeds from which are domestically retained) counters self-interest by incentivizing agents to internalize the externality. The model of this article indicates an exact sense in which each agent’s extra cost from a higher emissions price is counterbalanced by that agent’s extra benefit from inducing all other agents to simultaneously lower their emissions in response to the higher price. Some implications are discussed. While the study is centered on a formal model, the tone of the policy discussion resembles more an exploratory think piece.Publication A Precautionary Tale of Uncertain Tail Fattening(Springer Science + Business Media, 2013) Weitzman, MartinSuppose that there is a probability density function for how bad things might get, but that the overall rate at which this probability density function slims down to approach zero in the tail is uncertain. The paper shows how a basic precautionary principle of tail fattening could then apply. The worse is the contemplated damage, the more should a decision maker consider the bad tail to be among the relatively fatter-tailed possibilities. A rough numerical example is applied to the uncertain tail distribution of climate sensitivity.Publication Determining Benefits and Costs for Future Generations(American Association for the Advancement of Science (AAAS), 2013) Arrow, K.; Cropper, M.; Gollier, C.; Groom, B.; Heal, G.; Newell, R.; Nordhaus, W.; Pindyck, R.; Pizer, W.; Portney, P.; Sterner, T.; Tol, R. S. J.; Weitzman, MartinIn economic project analysis, the rate at which future benefits and costs are discounted relative to current values often determines whether a project passes the benefit-cost test. This is especially true of projects with long time horizons, such as those to reduce greenhouse gas (GHG) emissions. Whether the benefits of climate policies, which can last for centuries, outweigh the costs, many of which are borne today, is especially sensitive to the rate at which future benefits are discounted. This is also true of other policies, e.g., affecting nuclear waste disposal or the construction of long-lived infrastructure.Publication Tail-Hedge Discounting and the Social Cost of Carbon(American Economic Association, 2013) Weitzman, MartinThe choice of an overall discount rate for climate change investments depends critically on how different components of investment payoffs are discounted at differing rates reflecting their underlying risk characteristics. Such underlying rates can vary enormously, from ≈1 percent for idiosyncratic diversifiable risk to ≈7 percent for systematic nondiversifiable risk. Which risk-adjusted rate is chosen can have a huge impact on cost-benefit analysis. In this expository paper, I attempt to set forth in accessible language with a simple linear model what I think are some of the basic issues involved in discounting climate risks. The paper introduces a new concept that may be relevant for climate-change discounting: the degree to which an investment hedges against the bad tail of catastrophic damages by insuring positive expected payoffs even under the worst circumstances. The prototype application is calculating the social cost of carbon.Publication The Geoengineered Planet(MIT Press, 2014) Weitzman, MartinPublication Fat-Tailed Uncertainty in the Economics of Catastrophic Climate Change(Oxford University Press (OUP), 2011) Weitzman, MartinIn this article, I revisit some basic issues concerning structural uncertainty and catastrophic climate change. My target audience here are general economists, so this article could also be viewed as a somewhat less technical exposition that supplements my previous work. Using empirical examples, I argue that it is implausible that low-probability, high-negative impact events would not much influence an economic analysis of climate change. I then try to integrate the empirical examples and the theory together into a unified package with a unified message that the possibility of catastrophic climate change needs to be taken seriously.Publication How should the distant future be discounted when discount rates are uncertain?(Elsevier BV, 2010) Gollier, Christian; Weitzman, MartinThe so-called “Weitzman–Gollier puzzle” is the fact that two seemingly symmetric and equally plausible ways of dealing with uncertain future discount rates appear to give diametrically opposed results. The puzzle is resolved when agents optimize their consumption plans. The long run discount rate declines over time toward its lowest possible value.
- «
- 1 (current)
- 2
- 3
- »