Uncertain Outcomes and Climate Change Policy

Robert Pindyck

Working Papers from Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research

Abstract: Focusing on tail effects, I incorporate distributions for temperature change and its economic impact in an analysis of climate change policy. I estimate the fraction of consumption w_(_ ) that society would be willing to sacrifice to ensure that any increase in temperature at a future point is limited to _ . Using information on the distributions for temperature change and economic impact from studies assembled by the IPCC and from “integrated assessment models” (IAMs), I fit displaced gamma distributions for these variables. Unlike existing IAMs, I model economic impact as a relationship between temperature change and the growth rate of GDP as opposed to its level, so that warming has a permanent impact on future GDP. The fitted distributions for temperature change and economic impact generally yield values of w_(_ ) below 2%, even for small values of _ , unless one assumes extreme parameter values and/or substantial shifts in the temperature distribution. These results are consistent with moderate abatement policies.

Date: 2009-08
New Economics Papers: this item is included in nep-ene, nep-env, nep-fdg and nep-res
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http://tisiphone.mit.edu/RePEc/mee/wpaper/2009-007.pdf (application/pdf)

Related works:
Journal Article: Uncertain outcomes and climate change policy (2012)
Working Paper: Uncertain Outcomes and Climate Change Policy (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:mee:wpaper:0907

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