Question

Case Study : "Global Warming"
Case study 1.1: Global Warming Part I: What to do about global warming Yet hot-headed attempts to link specific weather A UN treaty now under discussion looks promising - disasters to the greenhouse effect are scientific bunk. as long as it remains flexible The correct approach is coolly to assess the science of How should reasonable people react to the hype and climate modelling is still in its infancy, and for most of climate change before taking action. Unfortunately, controversy over global warming? Judging by recent the past decade it has raised as many questions as it headlines, you might think we are already doomed. has answered. Now, however, the picture is getting Newspapers have been quick to link extreme clearer. There will never be consensus, but the weather events, ranging from floods in Britain and balance of the evidence suggests that global warming Mozambique to hurricanes in Central America, directly to global warming. Greens say that worse will is indeed happening that much of it has recently been man-made; and that there is a risk of potentially ensue if governments do not act. Many politicians disastrous consequences. Even the normally stolid have duly jumped on the bandwagon, citing recent disasters as a reason for speeding up action on the insurance industry is getting excited. Insurers reckon that weather disasters have cost roughly $400 billion Kyoto treaty on climate change that commits rich countries to cut emissions of greenhouse gases. This over the past decade and that the damage is likely week saw the start of a summit in The Hague to only to increase. The time has come to accept that global warming is a credible enough threat to require discuss all this. a public-policy response.
But what exactly? At first blush, the Kyoto treaty expertise. The result is all too likely to be bad policy, at seems to offer a good way forward. It is a global potentially heavy cost to the world economy. treaty: it would be foolish to deal with this most In our Economics focus of February 15th this year, global of problems in any other way. It sets a long we drew attention to and posted on our website) term framework that requires frequent updating and telling criticisms of the IPCC's work made by two revision, rather like the post-war process of trade independent commentators, lan Castles, a former liberalisation. That is sensible because climate head of Australia's Bureau of Statistics, and David change will be at least a 100-year problem, and so Henderson, formerly the chief economist of the will require a treaty with institutions and mechanisms Organisation for Economic Co-operation and that endure. The big question over Kyoto remains its Development (OECD) and now visiting professor at cost. How much insurance is worth buying now Westminster Business School. Their criticisms of the against an uncertain, but possibly devastating, future IPCC were wide-ranging, but focused on the panel's threat? And the answer lies in a clear-headed forecasts of greenhouse gas emissions. The method assessment of benefits and costs. The case for doing employed, the critics argued, had given an upward something has increased during the three years since bias to the projections. Kyoto was signed. Yet it also remains true that all The IPCC's procedure relied, first, on measuring answers will be easier if economic growth is gaps between incomes in poor countries and meanwhile sustained: stopping the world while the incomes in rich countries, and, second, on supposing problem is dealt with is not a sensible option, given that those gaps would be substantially narrowed, or that resources to deal with it would then become entirely closed, by the end of this century. Contrary to steadily scarcer. standard practice, the IPCC measured the initial gaps That points to two general conclusions about how using market-based exchange rates rather than rates to implement Kyoto. The simplest is that countries adjusted for differences in purchasing power. This should search out "no regrets" measures that are error makes the initial income gaps seem far larger beneficial in their own right as well as reducing than they really are, so the subsequent catching-up is emissions - such as scrapping coal subsidies, correspondingly faster. The developing country liberalising energy markets and cutting farm support. growth rates yielded by this method are historically The second is that implementation should use implausible, to put it mildly. The emissions forecasts market-friendly measures that minimise the costs based on those implausibly high growth rates are
The second is that implementation should use implausible, to put it mildly. The emissions forecasts market-friendly measures that minimise the costs based on those implausibly high growth rates are and risks of slowing economic growth. accordingly unsound. The Castles-Henderson critique was subsequently Part II: Hot potato revisited published in the journal Energy and Environment A lack-of-progress report on the Intergovernmental (volume 14, number 2-3). A response by 15 authors Panel on Climate Change associated with the IPCC purporting to defend the You might think that a policy issue which puts at stake panel's projections was published in the same issue. hundreds of billions of dollars' worth of global output "deplorable misinformation and neglecting what the It accused the two critics of bias, bad faith, peddling would arouse at least the casual interest of the world's economics and finance ministries. You would the case Mr Castles and Mr Henderson had laid out- 15 regard as proper procedure. Alas, it fails to answer be wrong. Global warming and the actions namely, that the IPCC's low-case scenarios are contemplated to mitigate it could well involve costs patently not low-case scenarios, and that the panel of that order. Assessing the possible scale of future greenhouse-gas emissions, and hence of man-made of possibilities. If anything, as the two critics argue in has therefore failed to give a true account of the range global warming, involves economic forecasts and economic calculations. Those forecasts and an article in the subsequent issue of Energy and calculations will in turn provide the basis for policy on Environment, the reply of the 15 authors gives new the issue. Yet governments have been content to grounds for concern. This week the IPCC is preparing to embark on its next global warming "assessment leave these questions to a body - the review" - and if the tone of its reply to the critics is any Intergovernmental Panel on Climate Change guide, it is intent on business as usual. (IPCC) - which appears to lack the necessary
It is true, as the IPCC says in its defence, that the panel presents a range of scenarios. But, as we pointed out before, even the scenarios that give the lowest cumulative emissions assume that incomes in the developing countries will increase at a much faster rate over the course of the century than they have ever done before. Disaggregated projections published by the IPCC say that even in the lowest- emission scenarios - growth in poor countries will be so fast that by the end of the century Americans will be poorer on average than South Africans, Algerians, Argentines, Libyans, Turks and North Koreans. Mr Castles and Mr Henderson can hardly be alone in finding that odd. of submissions. When the peers in question are drawn from a restricted professional domain - whereas the issues under consideration make demands upon a wide range of professional skills - peer review is not a way to assure the highest standards of work by exposing research to scepticism. It is just the opposite: a kind of intellectual restrictive practice, which allows flawed or downright shoddy work to acquire a standing it does not deserve. Part of the remedy proposed by Mr Castles and Mr Henderson in their new article is to get officials from finance and economics ministries into the long-range emissions-forecasting business. The Australian Treasury is now starting to take an active interest in IPCC-related issues, and a letter to the British Treasury drawing attention to Castles-Henderson (evidently it failed to notice unassisted) has just received a positive, if long delayed, response. More must be done, and soon. Work on a question of this sort would sit well with Mr Henderson's former employer, the OECD. The organisation's economic policy committee - a panel of top economic officials from national ministries - will next week install Gregory Mankiw, head of America's Council of Economic Advisers, as its new chairman. If Mr Mankiw is asking himself what new work that body ought to take on under his leadership, he need look no further than the dangerous economic incompetence of the IPCC. TUNNEL VISION The fact that the IPCC mobilised as many as 15 authors to supply its response is interesting. The panel's watchword is strength in numbers (lacking though it may be in strength at numbers). The exercise criticised by Mr Castles and Mr Henderson involved 53 authors, plus 89 expert reviewers and many others besides. Can so many experts get it wrong? The experts themselves may doubt it, but the answer is yes. The problem is that this horde of authorities is drawn from a narrow professional milieu. Economic and statistical expertise is not among their strengths. Making matters worse, the panel's approach lays great emphasis on peer review
• This case study illustrates the variety of issues with which managerial economics is concerned. The following questions arise:

Q1. Is there a problem to be addressed?

Q2. Is there a solution or solutions to the problem, in terms of strategies or course of action that can be taken?

Q3. What objective or objectives can be defined for these strategies?

Q4. What constraints exist in terms of operating any strategies?

Q5. How can we identify strategies as solutions to the problem?

Q6. How can we evaluate these strategies in terms of costs and benefits, particularly when these involve life and health?

Q7. What is the best way of measuring the relevant variables?

Q8. What assumptions should be made in our analysis?
Q9. How do we deal with the problem of risk and uncertainty regarding the future and the effects of strategies in the future?

Q10. How can we approach the problems of conflicts of interest between different countries and between different consumers and producers?

Q11. What criteria can we use for selecting strategies from among different possible course of action?

Q12. How do political biases and agendas affect decision-making processes in practice?

Answer 1

1) Answer of first question

There will never be consensus, but the weather events, ranging from floods in Britain and balance of the evidence suggests that global warming Mozambique to hurricanes in Central America, directly to global warming. Greens say that worse will is indeed happening that much of it has recently been man-made; and that there is a risk of potentially ensue if governments do not act

2) Answer of second question

Following are the solution to the problem and the strategies to be carried out-

Their criticisms of the against an uncertain, but possibly devastating, future IPCC were wide-ranging, but focused on the panel's threat? And the answer lies in clear-headed forecasts of greenhouse gas emissions. The method assessment of benefits and costs. The case for doing employed, the critics argued, had given an upward something has increased during the three years since bias to the projections. Kyoto was signed. Yet it also remains true that all The IPCC's procedure relied, first, on measuring answers will be easier if economic growth is gaps between incomes in poor countries and meanwhile sustained: stopping the world while the incomes in rich countries, and, second, on supposing problem is dealt with is not a sensible option, given that those gaps would be substantially narrowed, or that resources to deal with it would then become entirely closed, by the end of this century. Contrary to steadily scarcer. Standard practice, the IPCC measured the initial gaps That points to two general conclusions about how using market-based exchange rates rather than rates to implement Kyoto

3) Answer of third question

Following are the objective to be carried out for strategies-

Standard practice, the IPCC measured the initial gaps that points to two general conclusions about how using market-based exchange rates rather than rates to implement Kyoto. The simplest is that countries adjusted for differences in purchasing power. This should search out "no regrets" measures that are error makes the initial income gaps seem far larger beneficial in their own right as well as reducing than they really are, so the subsequent catching-up is emissions - such as scrapping coal subsidies, correspondingly faster. The developing country liberalizing energy markets and cutting farm support. Growth rates yielded by this method are historically the second is that implementation should use implausible, to put it mildly. The emissions forecasts market-friendly measures that minimize the costs based on those implausibly high growth rates are
The second is that implementation should use implausible, to put it mildly. The emissions forecasts market-friendly measures that minimize the costs based on those implausibly high growth rates are and risks of slowing economic growth. Scenarios that give the lowest cumulative emissions assume that incomes in the developing countries will increase at a much faster rate over the course of the century than they have ever done before.

4) Answer of the fourth question

Disaggregated projections published by the IPCC say that even in the lowest- emission scenarios - growth in poor countries will be so fast that by the end of the century Americans will be poorer on average than South Africans, Algerians, Argentines, Libyans, Turks and North Koreans. The simplest is that countries adjusted for differences in purchasing power. This should search out "no regrets" measures that are error makes the initial income gaps seem far larger beneficial in their own right as well as reducing than they really are, so the subsequent catching-up is emissions - such as scrapping coal subsidies, correspondingly faster.