Insurance for a warming planet
I read yesterday an interesting review of the book written by Bjørn Lomborg, which proposes an economic analysis (the subtitle being "comparing costs and benefits") of climate change. Actually, it is a collective book written by the Copenhagen Business School. Martin L. Weitzman (here) wrote a nice review in Nature, a few week ago, precisely untitled 'Insurance for a warming planet'. As Martin Weitzman wrote it, surprisingly, there is no real discussion about uncertain in the book: "key parameters
are approximated by firm values, such as the median or mean, rather than a probability distribution. The modelling thus becomes a knobt-widdling exercise in optimizing outcomes". And to go further, "The economics of climate change is mainly about decision-making under extreme uncertainty [...] A striking feature of the economics of climate change is that rare but catastrophic events may have unfathomable costs. Deep uncertainty about the unknown unknowns of what might go wrong is therefore coupled with essentially unlimited liability. The resulting battle between declining probabilities and increasing damages is difficult to resolve. Alas, this uncertainty can figure prominently in evaluations of climate change policies. Its absence in a book dealing with economic comparisons of smart solutions is a serious omission [...] When confronted with the possibility of extreme damages at low probabilities, most people do not look to averages. Instead they think about how much insurance they need, and can afford to buy, to survive those events. Climate policy is better viewed as buying insurance for the planet against extreme outcomes than as the solution to a multivariate problem over which we have control".