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The Economics of the Climate

Geoffrey Heal

Columbia University, Graduate School of Business and School of International and Public Affairs and NBER.

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. ( JEL D61, H43, Q48, Q54, Q58)

DOI

10.1257/jel.20151335

Volume

55 (3)

Pages

1046-1063

Language

en

Export

BibTeX

Sources

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