Keys to Economics of Global Warming: A Critique of the Dismal Theorem

Abstract

"M. L. Weitzman in his paper 'On Modeling and Interpreting the Economics of Catastrophic Climate Change' argues that a standard cost-benefit analysis cannot be used as a tool for climate change policy since the problem of climate change possesses a large irresolvable uncertainty. I critique his analysis on two grounds: 1) key issues in the economics of global warming and 2) the claim on catastrophe. I point out that the fundamental economics of global warming is to provide a public good that is spatially global and temporally lasting, for several centuries, by a globally coordinated effort. The fundamental issue is how to cooperate on a global scale to regulate greenhouse gases given the divergent needs and preferences of individuals, businesses, countries, and even future generations. I argue that Weitzman misinterprets climate science by assuming that all scenarios are equally likely and that there will be no policy intervention to control greenhouse gases. In addition, he focuses on long-term climate predictions. Finally, impact studies do not support catastrophic outcomes from climate change within this century."