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Multiple lines of research aim to quantify the economic impacts of climate change. We show that the effects of climate change on economic activity depend on how climate change alters weather across time and space. Changes in contemporary weather have direct effects on output; changes in past weather and in expectations of future weather induce adaptation; and changes in weather elsewhere around the globe introduce a general equilibrium effect. Using this framework, we argue that estimation of climate impacts faces a trilemma. A methodology can have at most two of: (i) robustness to a particular economic model’s structure, (ii) interpretation as effects of persistent, widespread, anticipated climate change, and (iii) quasi-experimental identification. We summarize the literature on climate damages in light of the trilemma. A solid body of knowledge has developed around direct effects, and recent work has made substantial progress towards understanding adaptation and spatial spillovers.
