Gambling with Civilization

Bowen Wang

ECN475

This article is about the economics of exhaustible resources such as oil and coal. The author explores risk, uncertainty and climate change in economics. In his discussion of the economics of climate change, Krugman presents two crucial lessons concerning economic forecasts of climate change. This includes the fact that making predictions particularly long run predictions is a difficulty. The article makes reference to William Nordhaus’s paper, “The Allocation of Energy Resources” in emphasizing this lesson. This includes the errors resulting from over-optimism on the part of the experts particularly in regard to the production of oil and nuclear power (Krugman, 2013). The predictions did not also take into account wind and solar power.

Second, the necessity of predictions. Despite future is uncertainty, it is vital that decisions that take the future into consideration are made. This is particularly case when it comes to exhaustible resources whereby depletion of such resources will have a toll on the future generations. It is also the case when it comes to global warming and the issue of climate change. This is because the emission of carbon dioxide will remain in the atmosphere and impact future generations. Predictions in this areas are necessary given the case for immediate action. It is, therefore, necessary to make the best predictions conceivable when approaching the issue of climate change. The article identifies integrated assessment models (IAMs) as an approach that can aid in this endeavor (Krugman, 2013).

This article concepts negative externalities in the context of climate change. Negative externalities refer to the costs that people inflict on others through their actions when they have no incentive to account for this actions when making decisions. The emission of greenhouses can thus be considered an instance of a negative externality. While the harm that such emissions cause is global rather than local and extends into the foreseeable future, they can still be considered an example of negative externalities. This article proposes imposing of a price on this emissions as the best way to control such emissions. Such prices can be implemented through carbon taxes for emissions or through a cap-and-trade system for greenhouse emissions (Krugman, 2013). This will give people an incentive to reduce emissions. The article argues that this approach will be more successful as compared to direct regulation aimed at curbing emissions.

References

Krugman, P. (2013, Novemember 7). Gambling with civilization. Retrieved from The Nwe York Review of Books: http://www.nybooks.com/articles/2013/11/07/climate-change-gambling-civilization/

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