Modeling the Impact of Warming in Climate Change Economics
Robert S. Pindyck
Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)
January 11, 2010
MIT Sloan Research Paper No. 4769-10
Any economic analysis of climate change policy requires some model that describes the impact of warming on future GDP and consumption. Most integrated assessment models (IAMs) relate temperature to the level of real GDP and consumption, but there are theoretical and empirical reasons to expect temperature to affect the growth rate rather than level of GDP. Does this distinction matter in terms of implications for policy? And how does the answer depend on the nature and extent of uncertainty over future temperature change and its impact? I address these questions by estimating the fraction of consumption society would be willing to sacrifice to limit future increases in temperature, using probability distributions for temperature and impact inferred from studies assembled by the IPCC, and comparing estimates based on a direct versus growth rate impact of temperature on GDP.
Number of Pages in PDF File: 34
Keywords: Environmental policy, climate change, impact of warming, uncertainty, economic impact models
JEL Classification: Q5; Q54, D81
Date posted: January 21, 2010
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