A Review of the Stern Review on the Economics of Climate Change

William Nordhaus

Journal of Economic Literature, 2007, vol. 45, issue 3, 686-702

Abstract: How much and how fast should we react to the threat of global warming? The Stern Review argues that the damages from climate change are large, and that nations should undertake sharp and immediate reductions in greenhouse gas emissions. An examination of the Review 's radical revision of the economics of climate change finds, however, that it depends decisively on the assumption of a near-zero time discount rate combined with a specific utility function. The Review 's unambiguous conclusions about the need for extreme immediate action will not survive the substitution of assumptions that are consistent with today's marketplace real interest rates and savings rates.

Date: 2007
Note: DOI: 10.1257/jel.45.3.686
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