Uncertain Outcomes and Climate Change Policy
12:00 - 13:30
Fondazione Eni Enrico Mattei
Corso Magenta 63
h. 12.00 Seminar
h. 13.00 Light Lunch
Seminars Office, firstname.lastname@example.org
Robert S. Pindyck, Bank of Tokyo-Mitsubishi Professor of Economics and Finance Sloan School of Management Massachusetts Institute of Technology
The seminar will be based on the following two papers by Robert S. Pindyck:
- “Modeling the Impact of Warming in Climate Change Economics”
Any economic analysis of climate change policy requires some model that describes the impact of warming on future GDP and consumption. Most integrated assessment models (IAMs) relate temperature to the level of real GDP and consumption, but there are theoretical and empirical reasons to expect temperature to affect the growth rate rather than level of GDP. Does this distinction matter in terms of implications for policy? And how does the answer depend on the nature and extent of uncertainty over future temperature change and its impact? I address these questions by estimating the fraction of consumption society would be willing to sacrifice to limit future increases in temperature, using probability distributions for temperature and impact inferred from studies assembled by the IPCC, and comparing estimates based on a direct versus growth rate impact of temperature on GDP.
- “Uncertain Outcomes and Climate Change Policy”
Focusing on tail effects, I incorporate distributions for temperature change and its economic impact in an analysis of climate change policy. I estimate the fraction of consumption w*(?) that society would be willing to sacrifice to ensure that any increase in temperature at a future point is limited to ?. Using information on the distributions for temperature change and economic impact from studies assembled by the IPCC and from “integrated assessment models” (IAMs), I fit displaced gamma distributions for these variables. Unlike existing IAMs, I model economic impact as a relationship between temperature change and the growth rate of GDP as opposed to its level, so that warming has a permanent impact on future GDP. The fitted distributions for temperature change and economic impact generally yield values of w*(?) below 2%, even for small values of ? , unless one assumes extreme parameter values and/or substantial shifts in the temperature distribution. These results are consistent with moderate abatement policies.