Climate change economics and discounted utilitarianism

Abstract

In the recent debate on climate change economics triggered by the Stern Review and his opponents, fundamental methodological issues emerge. It becomes obvious that different choices for some variables in the models applied lead to vastly different conclusions. Specifically, the choice of the pure time discount rate δ decides on whether immediate strong action (in the Stern Review) or a more moderate response (as in Nordhaus' writings) is the right strategy facing the climate change challenge. This contribution critically comments the use of both δ and η, the elasticity of marginal utility with respect to income, as “adjustment screws” in models of climate economics. Often, the models remain ambiguous as to whether they apply empirical or normative variables; facts and value judgments are not sufficiently distinguished. Furthermore, Discounted Utilitarianism appears to be a questionable fundament for climate change economics. From a non-utilitarian, specifically a Rawlsian point of view, it is pointless to maximize the utility an abstract, eternally-long lived phantasm “humanity” where no human individuals are distinguished. The more persuading position in climate economics is to postulate a duty to do everything in order to avoid serious evil for future generations.

Climate change economics; The Stern Review; Pure time discount rate; Elasticity of marginal utility; Discounted Utilitarianism;