Fat Tails and the Social Cost of Carbon

By Martin Weitzman. 2014

120 citations recorded by the source corpus.

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 sufficiently fat, and if the coefficient of relative risk aversion is greater than one, the catastrophe-reducing insurance aspect of mitigation investments could in theory have a strong influence on raising the social cost of carbon. In this paper I exposit the influence of fat tails on climate change economics in a simple stark formulation focused on the social cost of carbon. I then attempt to place the basic underlying issues within a balanced perspective.

Subfields: Economics and Econometrics, Renewable Energy, Sustainability and the Environment

View Paper: https://www.semanticscholar.org/paper/3b79d89c5de2f9b872f5398f601ce3b6b13ea304

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In Economics and Econometrics

In Renewable Energy, Sustainability and the Environment

Citations in the corpus

Economic growth and development with low‐carbon energy (2017, background): “The future benefits are difficult to quantify but could be very large, including through the insurance effect of reducing the risk of catastrophic climate change (Weitzman 2014).”
Report of the high-level commission on carbon prices (2017, result): “The Commission concluded, as did the fifth Assessment Report (AR5) of the IPCC and other review studies, that many of the impact functions used in modeling exercises to calculate the social costs of carbon are biased downward because they fail to consider many vitally important risks and costs assoc”