Monday, October 19, 2009

Uncertainty about climate change in a macro model

Recently, Paul Krugman and others have begun discussing optimal policies in light of climate change; apparently the forthcoming sequel to Freakonomics discusses this issue too.

Krugman points to a paper by Martin Weitzman published earlier this year in RESTAT that revisits the issues raised by the Stern review and William Nordhaus and others. Weitzman's clever point is that uncertainty in future outcomes reduces the moderating effect of time discounting on future costs, raising costs of inaction relative to benefits.