Discussion Paper

No. 2009-26 | May 07, 2009
Additive Damages, Fat-Tailed Climate Dynamics, and Uncertain Discounting

Abstract

This paper in applied theory argues that there is a loose chain of reasoning connecting the following three basic links in the economics of climate change: 1) additive damages may be more appropriate for analyzing the impacts of global warming than multiplicative damages; 2) an uncertain feedback-forcing coefficient, which might be near one with infinitesimal probability, can cause the distribution of the future time trajectory of global temperatures to have fat tails and a high variance; 3) when highvariance additive damages are discounted at an uncertain rate of pure time preference, which might be near zero with infinitesimal probability, it can make expected present discounted disutility very large. Some possible implications for welfare analysis and climate-change policy are briefly noted.

JEL Classification

Q54

Cite As

Martin L. Weitzman (2009). Additive Damages, Fat-Tailed Climate Dynamics, and Uncertain Discounting. Economics Discussion Papers, No 2009-26, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2009-26

Assessment



Comments and Questions


Anonymous - Referee Report
June 08, 2009 - 09:30

see attached file


Robert S. Pindyck - Referee Report
June 16, 2009 - 14:46

see attached file