Discussion of Weitzman’s paper (Weitzman, Structural Uncertainty and the Value of Statistical Life

in the economics of catastrophic Climate Change)

R Cooke

RFF

3-7-08

Ramesses II. 1279 BC Ramesses II 2008 CE

2008 World net worth $15,000,000,000,000,000

2008 World net worth $0.000084

Using Nordhaus’ empirically calibrated rate of time preference

Take home

• Economic values are meaningful relative to a market in which they can be traded(Meaningless propositions are neither true nor false)

• Group risk ≠ individual risks

• Dependence is more worrisome than fat tails.

Weitzman Thumbnail

Consumption period i: Ci = Ci(…. T….);

i = 1,2; T=temperature change

Amount of present consumption forgone for unit certain consumption in next time period (η> 0) :

M(C2) = β C2-η = if C2 = 0.

If for some value of T, with positive probability, C(… T…) = 0, then

E(M(C)) =

Also ‘= ’ if Prob(T > r) doesn’t → 0 fast enough.

Weitzman’s fixIntroduce 0 < D(λ) < C: “value of statistical life on earth as

we know it” or “value of statistical civilization”

“value of statistical civilization = 41”: true, false or meaningless?

“...a society trading off a decreased probability of its own catastrophic demise against the cost of lowering the probability of that catastrophe is facing a decision problem conceptually analogous to how people might make private trade-offs between decreased consumption as against a lower probability of their own personally-catastrophic end – which they do all the time” (Weitzman, Structural Uncertainty and the Value of Statistical Life in the economics of catastrophic Climate Change p4)

Climate sensitivity Weitzman(Pareto) Nordhaus

50 BAU scenarios; 200yrWeitzman Nordhaus

Emissions 300 yrs 50 BAUsWeitzman Nordhaus

50 Nordhaus BAUs 300 yr

Weitzman 500yrs, 30BAU’s

Nordhaus 500yrs, 30BAU’s

Nordhaus 500yrs, 30BAU’swith moderate dependence in time preference, risk

aversion, capital depreciation: Normal Copula

Nordhaus 500yrs, 30BAU’swith moderate dependence in time preference, risk

aversion, capital depreciation: Elliptical Copula

Take home

• Economic values are meaningful relative to a market in which they can be traded(Meaningless propositions are neither true nor false)

• Group risk ≠ individual risks

• Dependence is more worrisome than fat tails.