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Keys to Economics of Global Warming: A Critique of the Dismal Theorem

S. Niggol Seo

Economics Bulletin, 2010, vol. 30, issue 1, 130-138

Abstract: In a recent paper on climate change, M. Weitzman argues that the traditional cost-benefit analysis cannot be used as a reference tool for designing a climate change policy due to a large uncertainty that cannot be reduced by further analyses. The findings of the ‘Dismal Theorem' are, however, based on two critical assumptions: a single geographical unit and two distinct points in time. It assumes a single geographical unit, disallowing the possibility of reallocating resources across different geographical regions under climate change. It also assumes only two time periods, the present and the year 2100, which rules out a dynamic dimension of climate policy such as burden sharing across generations and learning over time. On the empirical side, the author's apprehension of catastrophe is blown out of context since he assumes that all climate scenarios are equally likely to occur and that there would be no policy intervention to control greenhouse gases over time. Finally, impact studies do not support catastrophic results from climate change within this century.

Keywords: Climate Catastrophe; Dismal Theorem; Global Public Goods; Cost-Benefit Analysis. (search for similar items in EconPapers)
JEL-codes: Q5 (search for similar items in EconPapers)
Date: 2010-01-11
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