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Climate change, catastrophes and Dismal Theorem: a critical review

Klimawandel, Katastrophen und das „Dismal Theorem“: eine kritische Überprüfung

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Abstract

The aim of this paper is to provide an overview of the main studies about catastrophic scenarios and environmental policy in the presence of natural disaster risks related to climate change. We investigate how literature has analysed these topics employing extreme case scenarios modelling.

Throughout this review we want to investigate how related literature has evolved in recent years and how the historical evolution of climate change issues has induced academic studies (and vice versa), and why it has become a crucial topic for regional science, not only regarding resilience analysis.

We focus on two main critiques: (i) the intergenerational equity between present and future generations (Stern 2006); (ii) the time preference rate linked to intergenerational equity, from the use of fat tail and the consequent debate around the Dismal Theorem (Weitzman 2009) to the debate around the usefulness of the Expected Utility theory.

Zusammenfassung

Ziel dieses Papiers ist es, einen Überblick über die wichtigsten Studien zu Katastrophenszenarien und zur Umweltpolitik bei Risiken aus Naturkatastrophen, die durch den Klimawandel bedingt sind, zu geben. Wir untersuchen, wie die Literatur diese Fragestellungen mithilfe von Extremfallszenarien modelliert und analysiert hat.

Über die ganze Studie hinweg untersuchen wir, wie sich die einschlägige Literatur in den letzten Jahren entwickelt hat und wie die historische Entwicklung von Fragestellungen zum Klimawandel zu akademischen Studien geführt haben (und umgekehrt) und warum sie zu einem entscheidenden Thema für die Regionalwissenschaft geworden sind, und dies nicht nur hinsichtlich Resilienzanalysen.

Wir konzentrieren uns auf zwei Hauptkritikpunkte in der Literatur: (i) die Gleichheit zwischen von gegenwärtigen und zukünftigen Generationen (Stern 2006); (ii) die Zeitpräferenzrate im Zusammenhang mit der Gleichheit zwischen den Generationen, d. h. von der Verwendung von großen Wertveränderungen (so genannte „fat tails“) und der daraus resultierenden Debatte um das „Dismal Theorem“ (Weitzman 2009) bis hin zur Debatte über die Nützlichkeit der Erwartungsnutzentheorie.

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Notes

  1. Stern (2006), page 104.

  2. The author called this parameter VSL-Like Parameter \(\lambda\) and it represents a random variable with a lower bound indicating “death” (Weitzman (2009), page 9) \(D> 0\) and \(D(\lambda)\leq C\) otherwise (\(C\) represents the consumption), so the utility function is given by: \(\frac{C^{1-\eta}-D^{1-\eta}}{1-\eta}\).

  3. Stern (2006) page 42.

  4. This is the setting assumed in the Stern Review as followed by a part of academia and by the Institution that supported the Review (e.g. HM Treasury 2003; Pearce and Ulph 199; Stern 1999); according to the author, using an elasticity rate on the marginal utility is a correct strategy to measure the social discount rate. Weitzman (2007) called \(\eta\) “equivalently” elasticity of marginal utility or coefficient of risk aversion.

  5. Page 65: “The Size of \(\delta\) How Much Should We Care about Future Generations?”.

  6. Page 65: “The Size of \(\eta\) How Curved Is the Utility Function?”.

  7. Sterner and Persson (2008), page 67: “The Rate of Growth”.

  8. Regarding this point, Sterner and Persson lamented the academic discredit of the “limit to growth theory” (Meadows et al. 1972), and the “absurd” Malthusian idea that, if the planet is finite, eternal exponential growth could be a problem (Malthus 1798).

  9. Page 723.

  10. Page 688: “(…) the Review should be read primarily as a document that is political in nature and has advocacy as its purpose.”.

  11. Dietz et al. (2007) page 245.

  12. Stern used a Monte Carlo simulation in order to establish a threshold temperature (degrees above present temperature) that must be reached before catastrophic events become possible. Stern (2006): \(\langle 2,5,8\rangle\); Ackerman et al. (2009): \(\langle 2,3,4\rangle\).

  13. Meaning that there is a rate at which the probability of a catastrophe occurring increases as temperatures also increase. Monte Carlo simulation, Ackerman et al. (2009): \(\langle 1,10,20\rangle\); Ackerman et al. (2009): \(\langle 10,20,30\rangle\).

  14. In Stern (2006) the damage function is given by \(aT^{N}\), where “a” is an uncertain parameter that is allowed to vary in the Monte Carlo analysis. He set the values at \(\langle 1,1.3,3\rangle\), whereas Ackerman et al. (2009) set them at \(\langle 1.5,2.25,3\rangle\).

  15. UNFCCC (2007) and UNFCCC (2014).

  16. http://unfccc.int/adaptation/nairobi_work_programme/knowledge_resources_and_publications/items/5447.php.

  17. The Dismal Theorem is found in Weitzman (2009), while the following summary of its assumptions and conclusions is given by Millner (2013).

  18. Weitzman (2011) page 277.

  19. Horowitz and Lange (2014); Karp (2009); Nordhaus (2011) and others.

  20. \(0<p<1\) where the entire consumption is normalized to 1.

  21. Horowitz and Lange (2009): Proposition 1, page 4.

  22. Millner (2013).

  23. Karp (2009), page 27.

  24. Karp (2009), page 17.

  25. Stern (2013), page 846.

  26. Stern (2013), page 848.

  27. Stern (2013), page 850.

  28. Pindyck (2013), pages 869 and 870.

  29. Weitzman (2013), page 873.

  30. Paris agreement: https://unfccc.int/resource/docs/2015/cop21/eng/l09r01.pdf.

  31. Ikefuji et al. (2015): page 309, Proposition 5.2.

  32. Ikefuji et al. (2015), page 310.

  33. The endowment is 20 €and each player can contribute from 0 to 4 €in each round (there are five rounds).

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Authors and Affiliations

  1. Research Institute on Sustainable Economic Growth (IRCrES-CNR), Milan, Italy

    Andrea Rampa

  2. Sustainability Environmental Economics and Dynamics Studies (SEEDS) – Research Centre, Ferrara, Italy

    Andrea Rampa

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  1. Andrea Rampa
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Correspondence to Andrea Rampa.

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I am grateful to Alessio D’Amato for very useful comments and suggestions.

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Rampa, A. Climate change, catastrophes and Dismal Theorem: a critical review. Rev Reg Res 40, 113–136 (2020). https://doi.org/10.1007/s10037-020-00140-9

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