Alternative Specifications and Cata

Alternative Specifications and Catastrophic Outcomes
Many researchers promote alternative specifications that imply outcomes that are much less extreme than those implied by my specifications. I am not arguing that these alternative
Fat-Tailed Uncertainty in the Economics of Catastrophic Climate Change 291
formulations are wrong or even implausible. I am merely pointing out that they are not likely to be robust with respect to assumptions about extreme catastrophic climate change and that they therefore fail an important ‘‘stress test.’’ Of course the reader should weigh the plausi- bility of the arguments and the reasonableness of the various specifications on their own merits. But it is difficult to form opinions about probabilities of climate change extremes, or about disutility functions for extreme temperatures, or about lots of other things that are relevant for deciding the tail fatness of the PDF of lnD. Suppose, for the sake of argument, that a policy maker believes the probability is 50 percent that my fat-tailed specification is correct and 50 percent that the thin-tailed specification of someone else is correct. Then, other things being equal, rational policy should lean more in the direction of my fat-tailed conclusions than in the direction of someone else’s thin-tailed conclusions because of the highly asymmetric consequences of fat tails versus thin tails. In this sense, whether it is fair or unfair, the playing field is not level between me and someone else. To further illustrate this point, suppose one person advises you that a fire insurance policy protecting your house against extreme losses is unnecessary because so few houses of your kind burn to the ground, while another person advises you that a complete fire insurance policy is necessary in your case. Other things being equal, should you flip a coin to decide what to do just because both advisers seem to be giving equally credible guidance?
Climate change is not the only possible catastrophic threat to humanity. In Weitzman (2009a), I listed what I consider to be the half-dozen or so serious contenders with climate change for po- tentially catastrophic global impacts with nonnegligible probabilities—biotechnology, nanotech- nology, asteroids, ‘‘strangelets,’’ pandemics, runaway rogue computers, nuclear proliferation—and went on to give a few tentative reasons why I think that climate change is especially worrisome. It may well be that each of the other half-dozen or so serious candidates for fat-tailed disasters deserves its own ballpark estimate of tail probabilities along with extremely crude calculations of policy implications, which is about the best we can do with potential catastrophes. Even if this were true, however, it would not lessen the need to reckon with the strong potential impli- cations of fat tails for BCA-like calculations in the particular case of climate change.
Conclusions
Taking fat tails into account has implications for climate change research and policy. For ex- ample, perhaps more emphasis should be placed on research about the extreme tails of relevant PDFs rather than on research about central tendencies. As another example, the fatness of the bad fat tail of proposed solutions (such as, perhaps, the possibility that buried CO2 might escape) needs to be weighed against the fatness of the tail of the climate change problem itself. With fat tails generally, we might want more explicit contingency planning for bad outcomes, including, perhaps, a niche role for last-resort portfolio options like geoengineering.
Qualitatively, fat tails favor more aggressive policies to lower GHGs than the ‘‘standard’’ BCA. Alas, the quantitative implications are less clear. As this article has stressed, the natural conse- quence of fat-tailed uncertainty should be to make economists less confident about climate change BCA and to make them adopt a more modest tone that befits less robust policy advice. My own conclusion is that the sheer magnitude of the deep structural uncertainties concerning
catastrophic outcomes, and the way we express this in our models, is likely to influence plausible
applications of BCA to the economics of climate change for

Kết quả (Việt) 1:

Thông số kỹ thuật khác và kết quả thảm họaNhiều nhà nghiên cứu quảng bá thông số kỹ thuật khác mà ngụ ý kết quả là ít cực đoan hơn những ngụ ý bởi thông số kỹ thuật của tôi. Tôi không tranh cãi rằng thay thếChất béo đuôi không chắc chắn trong kinh tế của biến đổi khí hậu thảm họa 291formulations are wrong or even implausible. I am merely pointing out that they are not likely to be robust with respect to assumptions about extreme catastrophic climate change and that they therefore fail an important ‘‘stress test.’’ Of course the reader should weigh the plausi- bility of the arguments and the reasonableness of the various specifications on their own merits. But it is difficult to form opinions about probabilities of climate change extremes, or about disutility functions for extreme temperatures, or about lots of other things that are relevant for deciding the tail fatness of the PDF of lnD. Suppose, for the sake of argument, that a policy maker believes the probability is 50 percent that my fat-tailed specification is correct and 50 percent that the thin-tailed specification of someone else is correct. Then, other things being equal, rational policy should lean more in the direction of my fat-tailed conclusions than in the direction of someone else’s thin-tailed conclusions because of the highly asymmetric consequences of fat tails versus thin tails. In this sense, whether it is fair or unfair, the playing field is not level between me and someone else. To further illustrate this point, suppose one person advises you that a fire insurance policy protecting your house against extreme losses is unnecessary because so few houses of your kind burn to the ground, while another person advises you that a complete fire insurance policy is necessary in your case. Other things being equal, should you flip a coin to decide what to do just because both advisers seem to be giving equally credible guidance?Climate change is not the only possible catastrophic threat to humanity. In Weitzman (2009a), I listed what I consider to be the half-dozen or so serious contenders with climate change for po- tentially catastrophic global impacts with nonnegligible probabilities—biotechnology, nanotech- nology, asteroids, ‘‘strangelets,’’ pandemics, runaway rogue computers, nuclear proliferation—and went on to give a few tentative reasons why I think that climate change is especially worrisome. It may well be that each of the other half-dozen or so serious candidates for fat-tailed disasters deserves its own ballpark estimate of tail probabilities along with extremely crude calculations of policy implications, which is about the best we can do with potential catastrophes. Even if this were true, however, it would not lessen the need to reckon with the strong potential impli- cations of fat tails for BCA-like calculations in the particular case of climate change.ConclusionsTaking fat tails into account has implications for climate change research and policy. For ex- ample, perhaps more emphasis should be placed on research about the extreme tails of relevant PDFs rather than on research about central tendencies. As another example, the fatness of the bad fat tail of proposed solutions (such as, perhaps, the possibility that buried CO2 might escape) needs to be weighed against the fatness of the tail of the climate change problem itself. With fat tails generally, we might want more explicit contingency planning for bad outcomes, including, perhaps, a niche role for last-resort portfolio options like geoengineering.Qualitatively, fat tails favor more aggressive policies to lower GHGs than the ‘‘standard’’ BCA. Alas, the quantitative implications are less clear. As this article has stressed, the natural conse- quence of fat-tailed uncertainty should be to make economists less confident about climate change BCA and to make them adopt a more modest tone that befits less robust policy advice. My own conclusion is that the sheer magnitude of the deep structural uncertainties concerning
catastrophic outcomes, and the way we express this in our models, is likely to influence plausible
applications of BCA to the economics of climate change for