Cheering Up the Dismal Theorem

by Dr. Ross McKitrick

Abstract

The Weitzman (2009) Dismal Theorem suggests agents today should be willing to pay an infinite amount to insure against fat-tailed risks of catastrophes such as climate change. This result, however, is sensitive to the use of ln(C) as an approximate measure of the change in consumption. Use of an exact measure yields a less dismal conclusion.