How much and how fast should we react to the threat of global warming? The Stern
Review argues that the damages from climate change are large, and that nations
should undertake sharp and immediate reductions in greenhouse gas emissions. An
examination of the Review's radical revision of the economics of climate change
finds, however, that it depends decisively on the assumption of a near-zero time discount
rate combined with a specific utility function. The Review's unambiguous conclusions
about the need for extreme immediate action will not survive the
substitution of assumptions that are consistent with today's marketplace real interest
rates and savings rates.
Nordhaus, William D..
2007."A Review of the Stern Review on the Economics of Climate Change."Journal of Economic Literature,
45(3): 686-702.DOI: 10.1257/jel.45.3.686