Friday, November 13, 2009
Bad Fat Tails
This figure from an article in the June 2009 issue of Nature illustrates why some economists, including Martin Weitzman, are increasingly concerned about potential climate catastrophes. The "bad fat tails" to the right of the probability density function (PDF) of an aggregation of climate sensitivity models indicates a low but non-negligible risk of global mean temperature increases in excess of 5 degrees (C) by the middle of the next century. Neither economists nor anyone else can tell us the likely socio-economic effects of such a temperature change for the US or any other country because the globe has not experienced such a rapid warming in the entire history of human existence on earth. That is why Marty, quite sensibly, argues for near-term expenditures that might reduce the already low probability of potential climate catastrophe towards zero.
William Nordhaus has offered a trenchant critique of Weitzman's model of catastrophic climate change (here), to which Weitzman has responded (here). In my view, even if all of Nordhaus's criticisms hold, Weitzman's central insight about the importance of the "bad fat tails" of climate sensitivity PDFs remains valid.