On Modeling and Interpreting the Economics of Catastrophic Climate Change
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CitationWeitzman, Martin L. 2009. On modeling and interpreting the economics of catastrophic climate change. Review of Economics and Statistics 91(1): 1-19.
AbstractWith climate change as prototype example, this paper analyzes the implications of structural uncertainty for the economics of low-probability, high-impact catastrophes. Even when updated by Bayesian learning, uncertain structural parameters induce a critical “tail fattening” of posterior-predictive distributions. Such fattened tails have strong implications for situations, like climate change, where a catastrophe is theoretically possible because prior knowledge cannot place sufficiently narrow bounds on overall damages. This paper shows that the economic consequences of fat-tailed structural uncertainty (along with unsureness about high-temperature damages) can readily outweigh the effects of discounting in climate-change policy analysis.
Citable link to this pagehttp://nrs.harvard.edu/urn-3:HUL.InstRepos:3693423
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