William Nordhaus’s Preference for Moderate Warming

In many models of the economics of climate change you may find the assumption that moderate warming (mostly something in the range of 2-3° centigrade) would be beneficial in some way or another. One line of argumentation is that people, at least those living in higher latitudes, would prefer this “slight” rise in global mean temperatures. One of the economists working with this assumption is William Nordhaus, who built it into his integrated assessment model DICE.

There are some straightforward reasons to reject the assumption that moderate warming would be of much benefit:

  • it is an over-accentuation of the needs of people living in higher latitudes;
  • it is an oversimplification of the consequences of higher mean temperatures, which indeed would mean, inter alia, stronger oscillations around the mean, more extreme weather events and so on.
  • it omits the fact that relative temperatures seem to be more important for people to feel comfortably than absolute ones.

Then there is the problem of the conclusion drawn by some economists from such assumptions – namely that “we have plenty of time” before we must do something against anthropogenic climate change: whereas the fact is that the greenhouse gases we already have poured into the atmosphere may be enough to cause such “moderate warming” of 2-3° C above preindustrial levels.

But all this is not the reason why I am writing this post, since these are arguments already widely discussed (partly in this blog as well, e.g. here). Instead, I would like to concentrate on something else – namely, on the “statistical foundation” from which Mr Nordhaus has drawn his conclusion that people would prefer a moderate rise in mean temperatures (to up to 20 degrees centigrade). I shall argue, using a simple example, that there is no such logical linkage as Nordhaus has assumed (note that I am not going to prove here that people living in higher latitudes wouldn’t prefer some warming – I only want to show that one cannot draw this conclusion from the data set used to design the DICE model).

So, what is the explanation given by Nordhaus for his assumption that people in the United States would prefer yearly mean temperatures to rise to up to 20° C? It is mainly the simple fact that expenditures for recreation in summer are higher than in winter. Simple as it is – this argument is, I would argue, wrong.

There are at least three reasons why one cannot draw this conclusion. The first two are rather “technical”. The last requires some imagination and I will therefore explain it using an example.

First, using this argument one considers only rich people within the particular nation (US, in this case): since they have a much higher ability to pay for the kind of recreation they prefer, it gives them much more weight in tourism statistics. And that while Nordhaus implicitly claims that the preference for higher temperatures is valid for the whole population of the US.

Second, Nordhaus seems to be ignoring the fact that there is such thing as school holidays. Since students have holidays in summer, most parents understandingly prefer to use up their holidays in summer, when they are able to do it together with their children. And since many people with a remarkable ability to pay (and thus appearing in the statistical data) are parents, one cannot just conclude that they prefer summer for holidays because of the higher temperatures.

The third argument against Nordhaus’s logic is, as I have written, best explained using an example. Imagine a person who has enough money to choose when she wants to make holidays. So she makes them twice a year: in summer, with her children, and in winter. In summer they travel a lot, thus contributing to the recreation and tourism statistics. But the person in consideration doesn’t actually like high temperatures that much. She loves winter. In her winter holidays she sits at home in the middle of a beautiful landscape, watching the snow, building snowmen, walking around, and sitting in front of a fireplace and reading books. Nordhaus would assume that, according to available statistics, this person is preferring higher temperatures – though, in fact, quite the opposite is true.

This way of reasoning seems to be a symptom of a bigger flaw apparent in modern economics. Since economists need, or, for that matter, believe to need “hard data” to draw any conclusion from, they try to use statistical data, often building their assumptions “on money”. Sometimes it may be helpful. But often, as in the case discussed here, it leads to useless, though technically convincing conclusions.

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