Fat-Tailed Uncertainty in the Economics of Catastrophic Climate Change

  title={Fat-Tailed Uncertainty in the Economics of Catastrophic Climate Change},
  author={Martin Weitzman},
  journal={Review of Environmental Economics and Policy},
  pages={275 - 292}
  • M. Weitzman
  • Published 1 July 2011
  • Economics
  • Review of Environmental Economics and Policy
In this article, I revisit some basic issues concerning structural uncertainty and catastrophic climate change. My target audience here are general economists, so this article could also be viewed as a somewhat less technical exposition that supplements my previous work. Using empirical examples, I argue that it is implausible that low-probability, high-negative impact events would not much influence an economic analysis of climate change. I then try to integrate the empirical examples and the… 
Climate Policy Under Fat-Tailed Risk: An Application of Dice
Uncertainty plays a significant role in evaluating climate policy, and fat-tailed uncertainty may dominate policy advice. Should we make our utmost effort to prevent the arbitrarily large impacts of
Fat-tailed risk about climate change and climate policy
This paper investigates the role of emissions control in welfare maximization under fat-tailed risk about climate change. We provide a classification of fat tails and discuss the effect of fat-tailed
Positive Uncertainty Effects of Near-Term Climate Policy Recommendations
How does risk and uncertainty in climate thresholds impact the optimal policy? For a while, the integrated assessment community has struggled to determine this so called uncertainty effect on the
The Climate Policy Dilemma
  • R. Pindyck
  • Economics, Political Science
    Review of Environmental Economics and Policy
  • 2013
Climate policy poses a dilemma for environmental economists. The economic argument for stringent greenhouse gas (GHG) abatement is far from clear. There is disagreement among both climate scientists
Moving Forward with Incorporating "Catastrophic" Climate Change into Policy Analysis
It has often been stated that current studies aimed at understanding the magnitude of optimal climate policy fail to adequately capture the potential for “catastrophic” impacts of climate change.
Optimal Taxation in the Macroeconomics of Climate Change
Climate change has in recent years moved to the forefront of the policy scene. At the same time, the research literature on macroeconomic aspects of climate change has grown and broadened
Fat Tails and the Social Cost of Carbon
At high enough greenhouse gas concentrations, climate change might conceivably cause catastrophic damages with small but non-negligible probabilities. If the bad tail of climate damages is
The Structure of Economic Modeling of the Potential Impacts of Climate Change: Grafting Gross Underestimation of Risk onto Already Narrow Science Models
Scientists describe the scale of the risks from unmanaged climate change as potentially immense. However, the scientific models, because they omit key factors that are hard to capture precisely,
Dealing with the Uncertainty About Climate Change
The article distinguishes between risk and uncertainty and describes why uncertainty poses particular challenges for the evaluation of climate change policies. The article briefly discusses the
Collective Risk and Distributional Equity in Climate Change Bargaining
International climate negotiations occur against the backdrop of increasing collective risk: the likelihood of catastrophic economic loss due to climate change will continue to increase unless and


On Modeling and Interpreting the Economics of Catastrophic Climate Change
  • M. Weitzman
  • Economics
    The Review of Economics and Statistics
  • 2009
With climate change as prototype example, this paper analyzes the implications of structural uncertainty for the economics of low-probability, high-impact catastrophes. Even when updated by Bayesian
A Review of the Stern Review on the Economics of Climate Change
How much and how fast should we react to the threat of global warming? The Stern Review argues that the damages from climate change are large, and that nations should undertake sharp and immediate
The Economics of Tail Events with an Application to Climate Change
  • W. Nordhaus
  • Economics
    Review of Environmental Economics and Policy
  • 2011
From time to time, something occurs that is outside the range of what is normally expected. This is called a tail event in the sense that it is way out the tail of a probability distribution. This
A Review of The Stern Review on the Economics of Climate Change
The Stern Review calls for immediate decisive action to stabilize greenhouse gases because "the benefits of strong, early action on climate change outweighs the costs." The economic analysis
Fat Tails, Thin Tails, and Climate Change Policy
  • R. Pindyck
  • Economics
    Review of Environmental Economics and Policy
  • 2011
Climate policy is complicated by the considerable uncertainties concerning the benefits and costs of abatement. We do not even know the probability distributions for future temperatures and impacts,
An Even Sterner Review: Introducing Relative Prices into the Discounting Debate
By estimating that the cost of unmitigated climate damages is an order of magnitude higher than most earlier estimates, the Stern Review on the Economics of Climate Change has had a major influence
Risk-Adjusted Gamma Discounting
It is widely recognized that the economics of distant-future events, like climate change, is critically dependent upon the choice of a discount rate. Unfortunately, it is unclear how to discount
Why the Far-Distant Future Should Be Discounted at Its Lowest Possible Rate
Abstract A critical feature of the distant future is currently unresolvable uncertainty about what will then be the appropriate rate of return on capital to use for discounting. This paper shows that
A Review of the Stern Review
The Stern Review on the Economics of Climate Change was published on 30 October 2006. In this article Richard Tol and Gary Yohe, while agreeing with some of the Review’s conclusions, disagree with
The Value of a Statistical Life: A Critical Review of Market Estimates Throughout the World
A substantial literature over the past thirty years has evaluated tradeoffs between money and fatality risks. These values in turn serve as estimates of the value of a statistical life. This article