Martin L. Weitzman, Department of Economics, Harvard University, Cambridge, MA 02138 (firstname.lastname@example.org).
GHG Targets as Insurance Against Catastrophic Climate Damages
Version of Record online: 27 MAR 2012
© 2012 Wiley Periodicals, Inc.
Journal of Public Economic Theory
Volume 14, Issue 2, pages 221–244, March 2012
How to Cite
WEITZMAN, M. L. (2012), GHG Targets as Insurance Against Catastrophic Climate Damages. Journal of Public Economic Theory, 14: 221–244. doi: 10.1111/j.1467-9779.2011.01539.x
The author is grateful to Stephan DeCanio, James Hammitt, John Harte, Matthew Huber, Gilbert Metcalf, William Nordhaus, Richard Schmalensee, Robert Socolow, and Gernot Wagner for their very useful comments on an earlier version.
- Issue online: 27 MAR 2012
- Version of Record online: 27 MAR 2012
- Received September 29, 2010; Accepted July 26, 2011.
The climate system is an angry beast and we are poking it with sticks†.
A critical issue in climate change economics is the specification of the so-called “damages function” and its interaction with the unknown uncertainty of catastrophic outcomes. This paper asks how much we might be misled by our economic assessment of climate change when we employ a conventional quadratic damages function and/or a thin-tailed probability distribution for extreme temperatures. The paper gives some numerical examples of the indirect value of various greenhouse gas (GHG) concentration targets as insurance against catastrophic climate change temperatures and damages. These numerical exercises suggest that we might be underestimating considerably the welfare losses from uncertainty by using a quadratic damages function and/or a thin-tailed temperature distribution. In these examples, the primary reason for keeping GHG levels down is to insure against high-temperature catastrophic climate risks.