Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/235309 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 8939
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
Weitzman's Dismal Theorem has that the expected net present value of a stock problem with a stochastic growth rate with unknown variance is unbounded. Cost-benefit analysis can therefore not be applied to greenhouse gas emission control. We use the Generalized Central Limit Theorem to show that the Dismal Theorem can be tested, in a finite sample, by estimating the tail index. We apply this test to social cost of carbon estimates from three commonly used integrated assessment models, and to previously published estimates. Two of the three models do not support the Dismal Theorem, but the third one does for low discount rates. The meta-analysis cannot reject the Dismal Theorem.
Subjects: 
climate policy
dismal theorem
fat tails
social cost of carbon
JEL: 
C46
D81
Q54
Document Type: 
Working Paper
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