The Economics of the Climate

I review the economic characteristics of the climate problem, focusing on the choice of discount rates in the presence of a stock externality, risk and uncertainty/ambiguity, and the role of integrated assessment models (IAMs) in analyzing policy choices. I suggest that IAMs can play a role in provi...

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Bibliographic Details
Published inJournal of economic literature Vol. 55; no. 3; pp. 1046 - 1063
Main Author Heal, Geoffrey
Format Journal Article
LanguageEnglish
Published Nashville American Economic Association 01.09.2017
Subjects
Ambiguity
Climate change
Climate change policy
Climate models
Economic models
Economic policy
Economic uncertainty
Environmental policy
Greenhouse gases
Risk
Risk assessment
Social costs
System theory
Uncertainty
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Summary:I review the economic characteristics of the climate problem, focusing on the choice of discount rates in the presence of a stock externality, risk and uncertainty/ambiguity, and the role of integrated assessment models (IAMs) in analyzing policy choices. I suggest that IAMs can play a role in providing qualitative understanding of how complex systems behave, but are not accurate enough to provide quantitative insights. Arguments in favor of action on climate issues have to be based on aversion to risk and ambiguity and the need to avoid a small but positive risk of a disastrous outcome.
ISSN:0022-0515
2328-8175
DOI:10.1257/jel.20151335