Testing the Dismal Theorem

David Anthoff and Richard Tol
Additional contact information
David Anthoff: University of California

Working Paper Series from Department of Economics, University of Sussex Business School

Abstract: Weitzman's Dismal Theorem has that the expected net present value of a stock problem with a stochastic growth rate with unknown variance is unbounded. Cost-benefit analysis can therefore not be applied to greenhouse gas emission control. We use the Generalized Central Limit Theorem to show that the Dismal Theorem can be tested, in a finite sample, by estimating the tail index. We apply this test to social cost of carbon estimates from three commonly used integrated assessment models, and to previously published estimates. Two of the three models do not support the Dismal Theorem, but the third one does for low discount rates. The meta-analysis cannot reject the Dismal Theorem.

Keywords: climate policy; dismal theorem; fat tails; social cost of carbon (search for similar items in EconPapers)
JEL-codes: C46 D81 Q54 (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-ecm, nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.sussex.ac.uk/economics/documents/wps-19-2020.pdf (application/pdf)

Related works:
Journal Article: Testing the Dismal Theorem (2022)
Working Paper: Testing the Dismal Theorem (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:sus:susewp:1920

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