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

  • Weitzman M
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This paper in applied theory argues that there is a loose chain of reasoning con- necting the following three basic links in the economics of climate change: 1) additive disutility damages may be appropriate for analyzing some impacts of global warming; 2) an uncertain feedback-forcing coe¢ cient, which might be near one with in…nitesimal probability, can cause the distribution of the future time trajectory of global temper- atures to have fat tails and a high variance; 3) when high-variance additive damages are discounted at an uncertain rate of pure time preference, which might be near zero with in…nitesimal probability, it can make expected present discounted disutility very large. Some possible implications for welfare analysis and climate-change policy are brie‡y noted.

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  • Martin L. Weitzman

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