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.
My thanks to Andrew Yoon for his excellent research assistance, and to Larry Goulder, Charles Kolstad, Steve Salant, Martin Weitzman, and seminar participants at the NBER Conference on Climate Change and at MIT for helpful comments and suggestions. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
Modeling the Impact of Warming in Climate Change Economics, Robert S. Pindyck. in The Economics of Climate Change: Adaptations Past and Present, Libecap and Steckel. 2011