Why Microeconomics is Important
Read this Yahoo News article stating the shocking “fact” that $60 trillion dollars of damage will be caused if the Artic ice melts and releases methane then read the “technical” documentation published today in Nature that explains where this huge number came from. For those who are real nerds, then go on and read the real technical documentation for this high profile Nature article. Please note that a “black box” economic model spits out an enormous damage cost estimate. The authors provide no intuition about how their model works or what are its key parameters. Microeconomists wouldn’t do this. We are always crystal clear about how our models operate and what assumptions we are making about behavior. I realize that big cost numbers are useful for winning the policy debate but Nature is a science magazine. Type the lead author’s name into Google Scholar and you will see that she doesn’t work on this issue. Strange?
UPDATE: To appreciate what are the key issues in creating “macro economic models of the consequences of climate change” read this important survey paper by Robert Pindyck of MIT.
Reader Comments
3 Replies to “Why Microeconomics is Important”
Comments are closed.
About Matthew
Matthew E. Kahn is a Professor at the UCLA Institute of the Environment, the Department of Economics, and the Department of Public Policy. He is a research associate at t…
READ more
An Al Gore group, Climate Reality, is giving a training next week in Chicago. I had a look at the training-group-members-only facebook page. Several trainees-to-be had uncritically posted this finding. Someone, though, had linked to this post and had the nerve to ask about the “black box” economic model, PAGE09. Thanks!
Matthew,
My parents mentioned this news coverage to me over the weekend and so I went this morning to look at the Nature commentary. Underwhelming to say the least.
Whatever one thinks about the PAGE model or IAMs generally (Is it really fair to criticize a coupled global climate-CGE model for lack of micro rigor – that’s not really the point of it, right?), the real problem with this study is that the emissions scenario – 50GT of methane over 10 to 20 years from massive disassociation of methane hydrates – is totally unsupported by climate or geologic science.
The basic problem is that most methane hydrate is buried relatively deeply in sediments overlain by relatively deep water. In order to get the CH4 out, you need to warm the water column and then allow diffusion processes (very slow in marine sediments) to warm the underlying sedimentary pore waters down to where the hydrates are buried. Only then does the methane ice melt. Best guess is that this will be a problem if warm temps are sustained for ~1000 years. But don’t trust me – read what the authors of an older article in Nature had to say:
http://www.nature.com/scitable/knowledge/library/methane-hydrates-and-contemporary-climate-change-24314790
So the problem is something even more fundamental than so-called black box modelling. No matter how good the model, if your inputs are flawed, you will get flawed output. – “garbage-in-garbage-out.”
Best,
MW