Economists Do It With Models

Warning: “graphic” content…

Bookmark and Share
Quote of the Day, Courtesy of Stephen Colbert…

September 17th, 2007 · 161 Comments
Environmental Econ · Markets

From Stephen Colbert, on the Colbert Report:

“As I said before, Al Gore’s movie made money, and therefore global warming must be real. The market has spoken.”

Obviously Colbert was being sarcastic, but there is something to be said for this. If I put on my pathological (to borrow a description of economists from Greg Mankiw) economist hat for a second, I start thinking about why global warming is problematic in the first place. (I admit that this is a different question than that of whether global warming exists scientifically.) On a basic level, global warming is problematic because it imparts a cost on people. But how much of a cost? If people are sufficiently rational, the cost of global warming can (theoretically) be estimated via the answer to one of the following questions:
— How much would you be willing to pay to make global warming go away?
— How much money would you have to be paid in order to be willing to sit back and let global warming take its course?
Unfortunately, there are a number of problems with this. First, people won’t always “put their money where their mouths are” in line with their answers to hypothetical questions. Second, people typically don’t even give the same estimates in response to the two questions above, even though they are objectively identical to a first approximation. Lastly, funding the problem of global warming has big potential for free-riding, so people may understate their willingness-to-pay under the assumption that others would pick up the slack.

All of that said, the fact that people are expending resources to at least learn more about global warming suggests that it’s a materially real problem for a lot of people. Indeed, the market HAS spoken.

Tags: Environmental Econ · Markets

161 responses so far ↓

Leave a Comment