Fat-Tailed Uncertainty in the Economics of Catastrophic Climate Change

By Martin Weitzman. Review of Environmental Economics and Policy, 2011

470 citations recorded by the source corpus.

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 theory together into a unified package with a unified message that the possibility of catastrophic climate change needs to be taken seriously.

Subfields: Economics and Econometrics, Management, Monitoring, Policy and Law, Renewable Energy, Sustainability and the Environment

View Paper: https://www.semanticscholar.org/paper/269a93950efc99023a1ee91b0eea51e90f6f3723

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Citations in the corpus

The appallingly bad neoclassical economics of climate change (2020, unknown): “This practice was replicated, rather than challenged, by subsequent Neoclassical economists – with some honourable exceptions, notably Pindyck (2017), Weitzman (2011a, 2011b), DeCanio (2003), Cline (1996), Darwin (1999), Kaufmann (1997, 1998), and Quiggin and Horowitz (1999).”
More than Mean Effects: Modeling the Effect of Climate on the Higher Order Moments of Crop Yields (2012, unknown): “Our application demonstrates this moment based maximum entropy approach’s ability to capture climate-driven changes in the “fatness” of the yield distribution’s tails, the importance of which was recently stressed in Nordhaus (2011), Pindyck (2011), and Weitzman (2011).”
Stochastic stability in monotone economies (2014, unknown): “The importance of modeling these left-tail events has been highlighted in a number of recent studies, including Clarke and Reed (1994), Yin and Newman (1996), Brock and Carpenter (2010), and Weitzman (2011).”
Equity, climate justice and fossil fuel extraction: principles for a managed phase out (2020, background): “In any trade-off, it makes sense then to maximise efforts to mitigate the larger, more unpredictable, less familiar, and potentially catastrophic impacts of climate change, while investing heavily in equitably addressing the more predictable, manageable costs of transition (Weitzman, 2011; Grubb 201”
Coping With Collapse: A Stock-Flow Consistent Monetary Macrodynamics of Global Warming (2018, methodology): “…0/ C DICE model, Nordhaus (2017), adjusted for a continuous framework ⇡ 2 Damage function parameter 0.00236/ C2 DICE model, Nordhaus (2017) ⇡ 3 Damage function parameter in the Weitzman case 0.00000507/ C⇣3 Weitzman (2011) and Dietz and Stern (2015) 0 Constant of short-term Phillips curve, (.)”
Fat Tails, Thin Tails, and Climate Change Policy (2010, background): “Weitzman (2010, 2011) argues that there is indeed a sizeable probability of a very large outcome for T, an outcome that could be catastrophic.”
Faraway, So Close: Coupled Climate and Economic Dynamics in an Agent-based Integrated Assessment Model (2018, unknown): “The Beta distribution is exible enough to explore a wide range of scenarios and to genuinely account for fat-tailed climate risks (Ackerman et al., 2010; Weitzman, 2011; Pindyck, 2012).”
Finance, climate-change and radical uncertainty: Towards a precautionary approach to financial policy (2021, background): “Climate change is a ‘ruin’ problem – i.e. it will result in a system exposed to irreversible harm that can eventually lead to a risk of total failure – which means negative outcomes may have infinite costs (Weitzman, 2011; Taleb et al., 2014).”
Opportunities for knowledge co-production across the energy-food-water nexus: Making interdisciplinary approaches work for better climate decision making (2017, unknown): “MARK Asseng et al., 2013; Rosenzweig et al., 2014) and scales (Garcia and You, 2016) has recently being analysed in the literature (Gillingham et al., 2015; Weitzman, 2011; Nordhaus, 2011; Knutti and Sedláček, 2013).”
The Economics of Tail Events with an Application to Climate Change (2011, background): “2The other articles in this symposium are Weitzman (2011) and Pindyck (2011).”