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Tuesday, July 29, 2008

The economics of catastrophe: Climate Progress critiques a recent Paul Krugman post on Marty Weitzman and Bjørn Lomborg. Here's the key point:

Harvard economist Martin Weitzman has a new paper in which he points out that the vast majority of conventional economic analyses of climate change should carry the following label:
WARNING: to be used ONLY for cost-benefit analysis of non-extreme climate change possibilities. NOT INTENDED to cover welfare evaluation of extreme tail possibilities, for which a complete accounting might produce ARBITRARILY DIFFERENT welfare outcomes.
In short, if you don’t factor in plausible worst-case scenarios — and the vast majority of economic analyses don’t (this means you, William Nordhaus, and you, too, Bjørn Lomborg) — your analysis is useless.