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In my last post, I described the Fundamental Theorem of Climate Economics as “You break it, you buy it.” Most everyone has seen this policy in place somewhere or another, and most people accept it as more or less fair to both sides of the equation. In law, it’s called the doctrine of strict liability and it applies in many situations.

One of the aspects of the rule that is important to the climate conversation is that, from an economic standpoint, it doesn’t matter if, once you break something, you actually pay the owner for the damage. The You Break It You Buy It doctrine is important because, when it works, it gives people the incentive to behave appropriately. In the context of a gift shop with lots of fragile objects for sale, the objective is to get us to take enough care to avoid breaking the merchandise. (more…)

When I introduce myself as an economist, one of the most common reactions I get from people is “No offense, but I hated economics in college.” I understand. I’ve both taken and taught economics at the college level, so I am both victim and perpetrator of our particular crime. The problem, as I try to explain to people, is not that economics is particularly difficult, but that it is often counter-intuitive. A lot of fundamental economics runs counter to common sense or, at the very least, does a good job of hiding from it.

Oddly, climate economics does not fall into this category. On one hand it is actually pretty complicated in places, but the other hand, there is a lot of common sense involved. The fundamental axiom of climate economics is, loosely translated, “You break it, you buy it.” (more…)