Global Warming: When to Bite the Bullet

Abstract

An option-value (or stopping-rule) model is developed to determine the optimal timing and expected value of policies (bullets) to slow global warming. The model and policies are calibrated to reflect current estimates or predictions of temperature drift, variance, damage, and the cost of slowing global warming. The "basic" and "asymptotic" bullets have option values of between $600 and$700 billion dollars for a discount rate of 5 percent. The most effective (platinum) bullet is not adopted until mean global temperature reaches a trigger value of 15.54°C, which is not likely to be reached during the next two decades.