Consumption tradeoff vs. catastrophes avoidance: implications of some recent results in happiness studies on the economics of climate change

Abstract

Recent discussion of climate change focuses on the trade-off between present and future consumption and hence correctly emphasizes the discount rate. Stern (2007) favours immediate and strong actions of environmental protection, but this has been questioned as the discount rate used is much lower than the market or commonly used rates. Focussed only on consumption trade-off, the use of these higher discount rates completely reverses the need for strong actions. However, an even more important problem has been largely neglected. This is the avoidance of catastrophes that may threaten the extinction of the human species. But “we lack a usable economic framework for dealing with these kinds of ... extreme disasters’ (Weitzman, J Econ Lit 45(3):703–724, 2007, p. 723). To analyse this, the comparison of marginal utility with total utility is needed. As happiness studies suggest a low ratio of marginal to total utility and as scientific and technological advances (especially in brain stimulation and genetic engineering) may dramatically increase future welfare, immediate and actions stronger than proposed by Stern may be justified despite high discount rates on future consumption, as discount rates on future utility/welfare should be much lower.

This is a preview of subscription content, log in to check access.

References

  1. Azar C, Schneider SH (2002) Are the economic costs of stabilising the atmosphere prohibitive? Ecol Econ 42:73–80

    Article  Google Scholar 

  2. Barker T (2008) The economics of avoiding dangerous climate change. An editorial essay on The Stern Review. Clim Change 89(3–4):173–194

    Article  Google Scholar 

  3. Bostrom N (2002) Existential risks: analyzing human extinction scenarios and related hazards. J Evol Technology, vol 9

  4. Clark AE, Frijters P, Shields MA (2008) Relative income, happiness, and utility: an explanation for the Easterlin paradox and other puzzles. J Econ Lit 46(1):95–144

    Article  Google Scholar 

  5. Di Tella R, Macculloch R (2006) Some uses of happiness data in economics. J Econ Perspect 20(1):25–46

    Article  Google Scholar 

  6. Dietz S, Stern N (2008) Why economic analysis supports strong action on climate change: a response to the Stern Review’s critics. Rev Environ Economics Policy 2:94–113

    Article  Google Scholar 

  7. Easterlin RA (1974) Does economic growth improve the human lot? Some empirical evidence. In: David PA, Reder MW (eds) Nations and households in economic growth: essays in honour of Moses Abramowitz. Academic Press, New York

    Google Scholar 

  8. Easterlin RA (2002) Happiness in economics. Edward Elgar, Cheltenham

    Google Scholar 

  9. Frey BS, Stutzer A (2002) Happiness and economics: how the economy and institutions affect well-being. Princeton University Press, Princeton

    Google Scholar 

  10. Heal G (2009) Climate economics: a meta-review and some suggestions for future research. Rev Environ Economics Policy 3(1):4–21

    Article  Google Scholar 

  11. Inglehart R, Klingemann H-D (2000) Subjective well-being by level of economic development. In: Genes, culture and happiness. MIT Press, Cambridge

    Google Scholar 

  12. Jaeger C, Schellnhuber HJ, Brovkin V (2008) Stern’s review and Adam’s fallacy. Clim Change 89(3–4):207–218

    Article  Google Scholar 

  13. Kahneman D, Krueger AB (2006) Developments in the measurement of subjective well-being. J Econ Perspect 20(1):3–24

    Article  Google Scholar 

  14. Layard R (2005) Happiness: lessons from a new science. Penguin Press, New York

    Google Scholar 

  15. Lykken DT (1999) Happiness: what studies on twins show us about nature, nurture, and the happiness set point. Golden Books, New York

    Google Scholar 

  16. Lykken DT, Tellegen A (1996) Happiness is a stochastic phenomenon. Psychol Sci 7:186–189

    Article  Google Scholar 

  17. Matheny JG (2007) Reducing the risk of human extinction. Risk Anal 27(5):1335–1344

    Article  Google Scholar 

  18. Mendelsohn R (2008) Is the Stern Review an economic analysis? Rev Environ Econ Policy 2(1):45–60

    Article  Google Scholar 

  19. Ng Y-K (1984) Expected subjective utility: is the Neumann-Morgenstern utility the same as the Neoclassical’s? Soc Choice Welf 1:177–186

    Article  Google Scholar 

  20. Ng Y-K (1989) What should we do about future generations? The impossibility of Parfit’s theory X. Econ Philos 5:135–253

    Article  Google Scholar 

  21. Ng Y-K (1991) Should we be very cautious or extremely cautious on measures that may involve our destruction? On the finiteness of our expected welfare. Soc Choice Welf 8(1):79–88

    Article  Google Scholar 

  22. Ng Y-K (1995) Towards welfare biology: evolutionary economics of animal consciousness and suffering. Biol Philos 10(3):255–285

    Article  Google Scholar 

  23. Ng Y-K (1996) Happiness surveys: some comparability issues and an exploratory survey based on just perceivable increments. Soc Indic Res 38(1):1–29

    Article  Google Scholar 

  24. Ng Y-K (1999) Utility, informed preference, or happiness? Soc Choice Welf 16(2):197–216

    Article  Google Scholar 

  25. Ng Y-K (2003) From preference to happiness: towards a more complete welfare economics. Soc Choice Welf 20:307–50

    Article  Google Scholar 

  26. Ng Y-K (2005) Intergenerational impartiality: replacing discounting by probability weighting. J Agric Environ Ethics 18(3):237–57

    Article  Google Scholar 

  27. Ng Y-K (2008) Happiness studies: ways to improve comparability and some public policy implications. Econ Rec 84:253–266

    Article  Google Scholar 

  28. Nordhaus WD (1994) Managing the global commons: the economics of climate change. MIT, Cambridge

    Google Scholar 

  29. Nordhaus WD (2007) A review of the Stern Review on the economics of climate change. J Econ Lit 45(3):686–702

    Article  Google Scholar 

  30. Olds J, Milner P (1954) Positive reinforcement produced by electrical stimulation of septal area and other regions of the rat brain. J Comp Physiol Psychol 47:419–427

    Article  Google Scholar 

  31. Quiggin J (2008) Stern and his critics on discounting and climate change: an editorial essay. Clim Change 89(3–4):195–205

    Article  Google Scholar 

  32. Raup DM (1992) Extinction: bad genes or bad luck. Norton

  33. Stern N (2007) The economics of climate change: the Stern Review. Cambridge University Press, Cambridge

    Google Scholar 

  34. Sterner T, Persson UM (2008) An even Sterner review: introducing relative prices into the discounting debate. Rev Environ Econ Policy 2:61–76

    Article  Google Scholar 

  35. Weitzman ML (2007) A review of the Stern Review on the economics of climate change. J Econ Lit 45(3):703–724

    Article  Google Scholar 

  36. Weitzman ML (2009) On modelling and interpreting the economics of climate change. Rev Econ Stat 91(1):1–19

    Article  Google Scholar 

  37. Yohe GW (2006) Some thoughts on the damage estimates presented in the Stern Review—an editorial. Integr Assess J 6(3):65–72

    Google Scholar 

  38. Yohe GW, Tol RSJ (2008) The Stern Review and the economics of climate change: an editorial essay. Clim Change 89:231–240

    Article  Google Scholar 

Download references

Author information

Affiliations

Authors

Corresponding author

Correspondence to Yew-Kwang Ng.

Additional information

I am grateful to my research assistant Mr. Fwu-chang Yan for help with the numerical simulation and for verifying the mathematical derivation. I am also grateful to seminar commentators at Australian National University and Monash University and to two anonymous referees for helpful suggestions.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Ng, Y. Consumption tradeoff vs. catastrophes avoidance: implications of some recent results in happiness studies on the economics of climate change. Climatic Change 105, 109–127 (2011). https://doi.org/10.1007/s10584-010-9880-z

Download citation

Keywords

  • Discount Rate
  • Brain Stimulation
  • Marginal Utility
  • Expected Utility
  • Catastrophe Prevention