Monday, October 7, 2013

Are models that show the economic effects of climate change useless?

The Economist: 

The question is whether it is nevertheless useful to have some guide to the future cost of climate change, however inexact. Mr Pindyck’s answer is radical: forget the models. He calls them “close to useless as tools for policy analysis…their use suggests a level of knowledge and precision that is simply illusory.”

Lord Stern is a little more hopeful. He points out that scientists are producing a new generation of climate models and urges economists to do the same. But to work, he says they require sweeping changes to incorporate the idea that global warming can damage capital stock, productivity and growth. They would also, he says, need low or even negative discount rates, to reflect the possibility that future generations will be worse off than the current one. That is controversial: the use of a low discount rate in the “Stern review”, the 2007 study that used some of the models he now complains of, was heavily criticised. But as John Maynard Keynes is supposed to have said, it is better to be roughly right than precisely wrong—or not to make any estimate at all.

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