Additive Damages, Fat-Tailed Climate Dynamics, and Uncertain Discounting

25 Pages Posted: 18 Dec 2010  

Martin Weitzman

Harvard University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 2009

Abstract

This paper in applied theory argues that there is a loose chain of reasoning connecting the following three basic links in the economics of climate change: 1) additive damages may be more appropriate for analyzing the impacts of global warming than multiplicative damages; 2) an uncertain feedback-forcing coefficient, which might be near one with infinitesimal probability, can cause the distribution of the future time trajectory of global temperatures to have fat tails and a high variance; 3) when highvariance additive damages are discounted at an uncertain rate of pure time preference, which might be near zero with infinitesimal probability, it can make expected present discounted disutility very large. Some possible implications for welfare analysis and climate-change policy are briefly noted.

Keywords: Climate change, fat tails

Suggested Citation

Weitzman, Martin, Additive Damages, Fat-Tailed Climate Dynamics, and Uncertain Discounting (2009). Economics Discussion Paper No. 2009-26. Available at SSRN: https://ssrn.com/abstract=1726726 or http://dx.doi.org/10.2139/ssrn.1726726

Martin L. Weitzman (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-495-5133 (Phone)

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