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Climate change, tipping points, and economics

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  • Zeeuw, Aart de

Abstract

This paper discusses the response of the economics profession to a possible occurrence of tipping points in natural systems, with a drop in welfare. For a climate tipping point, the hazard-rate model is relevant, and the paper shows that in a Ramsey growth model with climate tipping, the effect on policy is increased saving and increased taxation of greenhouse gas emissions. Climate change is often seen as a tragedy of the commons because incentives to deviate undermine cooperation and prevention of climate change. However, a climate tipping point can be prevented in a Nash equilibrium or with partial cooperation if the drop in welfare is sufficiently high. In case of uncertainty about the threshold, this result remains if the uncertainty is not too large. In the conclusion, the paper makes a few remarks on including tipping points in teaching environmental and resource economics.

Suggested Citation

  • Zeeuw, Aart de, 2024. "Climate change, tipping points, and economics," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 109(C).
    • Handle: RePEc:eee:soceco:v:109:y:2024:i:c:s2214804324000259
    DOI: 10.1016/j.socec.2024.102185
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    More about this item

    Keywords

    Climate tipping points; Economic policy; Growth; Tragedy of the commons;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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