Martin Weitzman RIP

Martin Weitzman RIP

Born on April Fool’s Day in 1942, Martin Weitzman died yesterday on August 27, 2019 at age 77.  Several of us here had long advocated that he share the first Nobel Prize to be given for environmental economics.  That award seems to have been given last fall, but only William Nordhaus got it for environmental while Paul Romer shared the prize for endogenous growth theory.  Mary missed out unfortunately, even though many of us think his work was more important than Nordhaus’s.  But he was always further out on the edge of respectability, even though his career always looked respectable on the surface: a PhD from MIT under Robert Solow and holding positions at Yale, MIT, and Harvard since 1989, as well as regularly publishing in top journals from 1965 on.

While he has been most famous for his work on environmental economics, early in his career in which he dealt with a wide range of issues, he was very heavily involved with comparative economics, with numerous papers on Soviet planning (he got a masters in operations research from Stanford in 1964), Marxian views on managing common resources, and most famously an advocate of “the share economy,” about which he wrote a highly influential book in 1984.

His 1974 paper in the QJE, “Prices and Quantities,” may have proven to be his most influential of all over his career, and was brought up on this blog in January in posts about the petition by many economists to impose a carbon tax without any mention of possible use of a cap and trade solution.  Marty was among those not signing that petition.  This famous paper reasonably argued that in a world of non-certainty regarding costs and benefits of environmental policies, the use of a tax versus a quantity control such as cap and trade depended on the relative slopes of the marginal cost and marginal damage functions. If the former is steeper then a price-oriented policy such as a tax is preferred whereas if the marginal damage function is steeper than a quantity-oriented policy such as cap and trade would be preferred. Regarding global climate many of us think the latter is the case, which may explain why Weitzman did not join the petition signers.

A less well known idea he was one of the first to advocate and  continues to is that policymakers doing cost-benefit analysis involving long time horizons such as those involved in global warming it is preferable to use different discount rates for different time horizons, in particular using higher discount rates for shorter time horizons for efficiency reasons by lower rates for longer time horizons out of concerns for intertemporal equity.  I think this idea has not gotten the attention it deserves partly because there is not an agreed name for this.  In his first paper on it in JEEM in 1994 he called it an “environmental discount rate.”  In 2002 he would more famously call it “gamma discounting.”  He was slightly edged in 1993 by Graciela Chichilnisky and her then-husband Geoffrey Heal who called it “the green golden rule” for the idea that present people should not exploit future people (by only using overly high discount rates) while future people should not exploit present people (by the use only of overly low discount rates).  Most recently in a 2015 paper  with Arrow, Heal, Nordhaus, and several others, Weitzman simply called it “a declining discount rate,” which may catch on in its boring neutrality.  I have thought this was a great idea since I first encountered it, and some policymakers have adopted it. But I fear it has gotten less attention partly because there is not an agreed upon way of pinning down exactly how the rate should decline for such analysis.

Finally in the last decade or so he had been emphasizing the problem that the distribution of climate outcomes is likely to have fat tails and noting that most of the standard analysis in IPCC reports (largely supported by Nordhaus) assumed Gaussian distributions lacking these kurtotic fat tails.  This  is an important matter.  If the distribution is Guassian, then the probability of possibly extremely high increases in world temperature are almost infinitesimal and can really be ignored.  However, assuming a Pareto or other fat tailed distribution, those probabilities increase sharply, getting into the level of one percent or more,  This remains probably too low to really affect politics or policy, but it is more salient and serious than one in a trillion.

Martin Weitzman’s death is a real loss.  May he rest in peace.

Barkley Rosser