Comments on: Don’t Discount the Stern Review

By: Stephane Z.

Stephane Z. — Mon, 18 Jun 2007 17:52:22 +0000

The vast and unconclusive litterature concerning the discounting rate for long periods (and long-term acute problems like climate change) shows how complex this question can be. For an interesting point of view (and easy to understand for non-economists like me), you can read “Just Keep Discounting, But…” written by Martin Weitzman in Discounting and Intergenerational Equity. It’s old (1999) but the point of view is still relevant.

By: Joe

Joe — Mon, 18 Jun 2007 19:07:50 +0000

Any recommendations for something to read online?

By: Stephane Z.

Stephane Z. — Mon, 18 Jun 2007 20:00:44 +0000

I just discovered that Weitzman published a paper about the Stern Review. You might not like it because he takes a stance against Stern’s low discounting rate. But he also explain the idea presented in “Just keep discounting” : there’s a great impact due to incertainty : low probability/high damage events gives an economic incentive to avoid that event (or take an insurance).

Here is the link : http://www.economics.harvard.edu/ faculty/ Weitzman/ papers/ JELSternReport.pdf

By: Joe

Joe — Mon, 18 Jun 2007 21:01:46 +0000

Funny thing. I actually like much of that paper. I have been meaning to blog on it. He has a section titled “Getting it Right for the Wrong Reasons?” in which he comes down halfway between Stern and his critics — but that is only because Weitzman (and frankly Stern) don’t fully understand the climate risks. The low probability/high damage events that he thinks should drive action are actually medium probability/super-high damage events. I will blog on this later. Thanks for posting it!

By: Stephane Z.

Stephane Z. — Tue, 19 Jun 2007 02:01:31 +0000

Low probability/high damage is “under” the medium proba/super-high damage. If the former requires an action, no need to say what is necessary for the latter

Weitzman is an interesting economist, very good at assessing economic impact of environmental depredation. He also wrote some good piece concerning biodiversity preservation (The Noah’s Ark Problem, M. Weitzman, Econometrica, Vol. 66, No. 6 -Nov., 1998). But it remains economy : models and assessing a value to things in the future.

In his article concerning climate change, his stress of the uncertainty remains the main argument. Even a very low probability can make the difference when you do the math.