You know all that money we have been spending on developing economic models of the effects of climate change? Well apparently it has mostly been wasted. At least that's the case according to Lord Stern, whose article in the sociology journal Nature says that we should be moving onto something more reliable.
Because the IAMs omit so many of the big risks, SCC estimates are often way too low. As a first step, the consequences being assessed should include the damages to human well-being and loss of life beyond simply reduced economic output. And the very large uncertainty, usually involving downward bias, in SCC estimates should always be made explicit...
A comprehensive review of the problems of using IAMs in climate economics called for the research community to develop a “third wave” of models. The authors identify various types of model that might offer advances. Two are: dynamic stochastic computable general equilibrium (DSGE) models, and agent-based models (ABMs).
It's also interesting to see stochastic modelling being touted in a week when climatologists have been outraged by a suggestion that such an approach might be useful in their own field.