The Climate Casino by William D. Nordhaus

Author:William D. Nordhaus
Language: eng
Format: epub
Publisher: Yale University Press
Published: 2013-03-21T16:00:00+00:00

18

CLIMATE POLICY BY BALANCING COSTS AND BENEFITS

Chapter 17 concluded that a sensible target for climate-change policy would require balancing abatement costs and climate damages. This approach is often used by economists in analyzing different options and is called cost-benefit analysis. The basic idea is quite intuitive. In a world of limited resources, we should make investments that produce the greatest net social benefits—that is, ones that have the greatest margin of social benefits over social costs.1

People perform cost-benefit analysis all the time in their daily lives. Sometimes, the calculations are straightforward. A neighborhood gasoline station is convenient, but it charges 10 cents per gallon more than the station near the mall. Is the $2 saving from going to the mall worth the extra time and gas to get there?

A more challenging choice involves selecting a college. Suppose you have been accepted at three colleges and need to choose among them. Not only do the economic costs differ, but the schools provide different benefits. Some of the benefits are market returns, such as tuition and postgraduate salary prospects. Others are nonmarket, such as the quality of student life, the climate, and the music. For some very rich students, the costs are largely irrelevant, and they can focus solely on the benefits. Most people, however, must take into account both costs and benefits. Some of these benefits might be hard to monetize, or put in dollar terms. But, at least implicitly, we put all costs and benefits onto the scale when we choose among available options.

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