A balance of questions: what can we ask of climate change economics?

David Comerford

No 2013-12, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

Abstract: The standard approach to the economics of climate change, which has its best known implementation in Nordhaus's DICE and RICE models (well described in Nordhaus's 2008 book, A Question of Balance) is not well equipped to deal with the possibility of catastrophe, since we are unable to evaluate a risk averse representative agent's expected utility when there is any signi cant probability of zero consumption. Whilst other authors attempt to develop new tools with which to address these problems, the simple solution proposed in this paper is to ask a question that the currently available tools of climate change economics are capable of answering. Rather than having agents optimally choosing a path (that differs from the recommendations of climate scientists) within models which cannot capture the essential features of the problem, I argue that economic models should be used to determine the savings and investment paths which implement climate targets that have been suggested in the physical science literature.

Keywords: Climate Change; Catastrophe; Optimal Policy; Alternative Energy Investment (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-ene, nep-env and nep-upt
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Working Paper: A balance of questions: what can we ask of climate change economics? (2013)
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