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  3. Journal of Economic Literature
  4. September 2017
  5. The Economics of the Climate

The Economics of the Climate

  • Geoffrey Heal
Journal of Economic Literature
vol. 55, no. 3, September 2017
(pp. 1046-63)
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Abstract

I review the economic characteristics of the climate problem, focusing on the choice of discount rates in the presence of a stock externality, risk and uncertainty/ambiguity, and the role of integrated assessment models (IAMs) in analyzing policy choices. I suggest that IAMs can play a role in providing qualitative understanding of how complex systems behave, but are not accurate enough to provide quantitative insights. Arguments in favor of action on climate issues have to be based on aversion to risk and ambiguity and the need to avoid a small but positive risk of a disastrous outcome.

Citation

Heal, Geoffrey. 2017. "The Economics of the Climate." Journal of Economic Literature, 55 (3): 1046-63. DOI: 10.1257/jel.20151335

Additional Materials

JEL Classification

  • D61 Allocative Efficiency; Cost-Benefit Analysis
  • H43 Project Evaluation; Social Discount Rate
  • Q48 Energy: Government Policy
  • Q54 Climate; Natural Disasters and Their Management; Global Warming
  • Q58 Environmental Economics: Government Policy