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On climate tail risks

Author

Listed:
  • Pablo Garcia Sanchez

Abstract

I model two ways climate tail risk could threaten the resources available for consumption in an otherwise standard cake-eating problem. I show that precautionary behaviour is optimal, no matter how low the probability of catastrophic climate outcomes.

Suggested Citation

  • Pablo Garcia Sanchez, 2022. "On climate tail risks," BCL working papers 164, Central Bank of Luxembourg.
    • Handle: RePEc:bcl:bclwop:bclwp164
    as

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    File URL: https://www.bcl.lu/en/publications/Working-papers/164/BCLWP164.pdf
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    References listed on IDEAS

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    1. Pindyck, Robert S., 2000. "Irreversibilities and the timing of environmental policy," Resource and Energy Economics, Elsevier, vol. 22(3), pages 233-259, July.
    2. Pindyck, Robert S., 2002. "Optimal timing problems in environmental economics," Journal of Economic Dynamics and Control, Elsevier, vol. 26(9-10), pages 1677-1697, August.
    3. Carlos M. Duarte & Susana Agusti & Edward Barbier & Gregory L. Britten & Juan Carlos Castilla & Jean-Pierre Gattuso & Robinson W. Fulweiler & Terry P. Hughes & Nancy Knowlton & Catherine E. Lovelock &, 2020. "Rebuilding marine life," Nature, Nature, vol. 580(7801), pages 39-51, April.
    4. Dreze, Jean & Stern, Nicholas, 1990. "Policy reform, shadow prices, and market prices," Journal of Public Economics, Elsevier, vol. 42(1), pages 1-45, June.
    5. Martin L. Weitzman, 2011. "Fat-Tailed Uncertainty in the Economics of Catastrophic Climate Change," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(2), pages 275-292, Summer.
    6. Harold Hotelling, 1931. "The Economics of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 39(2), pages 137-137.
    7. Partha Dasgupta & Geoffrey Heal, 1974. "The Optimal Depletion of Exhaustible Resources," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(5), pages 3-28.
    8. Nicholas Stern, 2013. "The Structure of Economic Modeling of the Potential Impacts of Climate Change: Grafting Gross Underestimation of Risk onto Already Narrow Science Models," Journal of Economic Literature, American Economic Association, vol. 51(3), pages 838-859, September.
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    More about this item

    Keywords

    Climate change; Tail Risk; Tipping Point;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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