A Review of the Stern Review on the Economics of Climate Change
Journal of Economic Literature, 2007, vol. 45, issue 3, 703-724
The Stern Review calls for immediate decisive action to stabilize greenhouse gases because "the benefits of strong, early action on climate change outweighs the costs." The economic analysis supporting this conclusion consists mostly of two basic strands. The first strand is a formal aggregative model that relies for its conclusions primarily upon imposing a very low discount rate. Concerning this discount-rate aspect, I am skeptical of the Review 's formal analysis, but this essay points out that we are actually a lot less sure about what interest rate should be used for discounting climate change than is commonly acknowledged. The Review 's second basic strand is a more intuitive argument that it might be very important to avoid possibly large uncertainties that are difficult to quantify. Concerning this uncertainty aspect, I argue that it might be recast into sound analytical reasoning that might justify some of the Review 's conclusions. The basic issue here is that spending money to slow global warming should perhaps not be conceptualized primarily as being about consumption smoothing as much as being about how much insurance to buy to offset the small change of a ruinous catastrophe that is difficult to compensate by ordinary savings.
Note: DOI: 10.1257/jel.45.3.703
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (302) Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to AEA members and institutional subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:aea:jeclit:v:45:y:2007:i:3:p:703-724
Ordering information: This journal article can be ordered from
Access Statistics for this article
Journal of Economic Literature is currently edited by Janet Currie
More articles in Journal of Economic Literature from American Economic Association Contact information at EDIRC.
Series data maintained by Jane Voros ().