This week's episode pays tribute to the life and work of Harvard Economics Professor Marty Weitzman, who died two weeks ago. Host Daniel Raimi talks with Gernot Wagner, a close collaborator and friend of Weitzman’s and a professor at New York University. Raimi and Wagner talk about two of Weitzman’s seminal contributions to the field of environmental economics, how this work has shaped public policies around the world, and who Marty was as a person.
Listen to the Podcast
Top of the Stack
References and recommendations made during the podcast:
- "Prices vs. Quantities" by Weitzman (1974)
- "Chutes and Ladders" board game
- The Uninhabitable Earth by David Wallace-Wells
The Full Transcript
Daniel Raimi: Hello, and welcome to a special episode of Resources Radio. I'm your host Daniel Raimi. This week we're going to pay tribute to the life and work of Harvard professor of economics, Marty Weitzman, who died two weeks ago. I'll talk with Dr. Gernot Wagner, a close collaborator and friend of Weitzman's and a professor at New York University. We'll talk about two of Marty's seminal contributions to the field of environmental economics, learn how this work has shaped public policies around the world, and talk about who Marty was as a person. This week's episode is a little longer than our typical format, but we thought it was appropriate as we reflect on the many contributions that Marty Weitzman has made to all of our thinking about environmental policy. Stay with us.
Okay. Gernot Wagner, thank you so much for joining us on Resources Radio, and you know, I'm really sorry that this is the context that we're having this conversation. There are a lot of wonderful things that we could talk with you about in terms of your own research and your own work. But sadly, today we're here to talk about the life of your friend and colleague, Marty Weitzman. So thank you for joining us. And from all of us at RFF, our condolences.
Gernot Wagner: Thank you.
Daniel Raimi: So we're going to talk about Marty Weitzman today. But before we talk about him, it would be helpful for us to know a little bit about you, and how you got to know Marty. So how did you get interested in environmental issues, and climate change in particular, and then how did you end up getting to know Marty?
Gernot Wagner: So, actually that goes way back. First week, freshman year in college. He was one of my victims I looked up. So, you know, dear professor Weitzman, I would like to study what you seem to have done for, you know, for a while. So, I literally just showed up at his office, as an 18-year-old. I remember distinctly it was, one of those very, very busy early days, right? Sort of trying to figure out what classes you will take and so on. But I stopped by his office and he gave me something like 60 minutes, maybe even more. He started way back when himself, sort of his history. He gave me, sort of his motivation for studying these issues.
And I remember this sort of to be one of the warmest welcomes I had experienced by a prof at the time. You know, there’s the saying, right? Everyone gives you one meeting, right? You always get 10 minutes with somebody at first, but you know, chances are good that they will not ask you back into their office if they are busy professor. But in this case, you know, that started sort of many more such meetings. And it was also a sort of significant day for a different reason. Not to get too personal, but it was the same day that I later on was in the same room as my now-wife for the very first time. Kofi Annan gave a speech that afternoon, I went to the talk, and our now eight-year-old son is called Annan.
Daniel Raimi: Oh wow. That's wonderful. So quite a day for you.
Gernot Wagner: Yes. It's quite imprinted in my memory, I can tell you that, meeting Marty for the first time.
Daniel Raimi: Yeah. Fantastic. Well, so you mentioned just a moment ago the background that Marty gave you about his own motivation for working on environmental issues. Can you share some of that and maybe a little bit more about his personal background; where he grew up, how he got interested in environmental issues, and so on?
Gernot Wagner: Yeah. So, like I said, I met him in 1998. So obviously there's many decades of his life before then. But I can tell you actually at this very first meeting, you know, I was a bright eyed, bushy tailed freshman. I had frankly no idea, but he basically started telling me the story of his Prices vs. Quantities paper published in 1974, which as far as I know, was sort of his first intellectual foray, at least into this area. And I guess, as so often with academic economists, for him too—even for him—it started with a rejection. So he was a very good economist at the time. Of course, he studied the Soviet economy. He studied the price control system that the Soviets had put in place and sort of tried to make sense of it all.
And his question basically was, you know, what's better, controlling quantities or controlling prices? In this context, in this context of a planned economy. He wrote up the paper. He submitted it somewhere, I don't remember where. It got rejected. And one of the referees apparently told him, you know, have you thought about this issue that seems to be hot these days? It was the early seventies, beginning of the environmental decades, right? President Nixon, EPA, and so on. Have you thought about applying this to pollution? Same idea, same concept, controlling prices versus controlling quantities. And you know, the paper itself, actually I have reread it this past week to sort of, you know, try to refresh my memory. At least, I reread the introduction to make sure that I'm right in saying that he did recast the paper to be about pollution.
Gernot Wagner: Turns out, actually that's not really the case. There's still a lot of, sort of Soviet planned economy stuff in there. But he did talk about it applying to the same idea, applying to pollution control. And as far as I know, and again, of course I didn't know him back then in the 70s. That was sort of Marty’s first foray into environmental issues. You know, I'm sure he personally cared about those issues himself. He certainly did in the last couple of decades of his life. He cared deeply about them. But I guess, as is to be expected from someone who is sort of as, intellectual in as many ways as he had been, his first foray into the economics of these questions was apparently through a rejection from a submitted paper.
Daniel Raimi: Nice. Yeah. If only all of us could be so productive with our rejections. That would be nice.
Gernot Wagner: Yeah. So of course a little bit counter to rhetoric of keeping them in the mail, right. Something gets rejected, you just send it back and blindly submit it again, right. Because somebody is going to take it. Well, he took a referee report from a rejection to heart, and made something out of it. Well, frankly, made his most cited paper ever out of it.
Daniel Raimi: Yeah. Pretty amazing. I wonder if they ever found out who that anonymous referee was, it would've been interesting to find out. So the paper we were just talking about, the Prices vs. Quantities paper. I wanted to talk a little bit more in detail about that paper and some of its sort of implications and how specifically it applies to pollution. I remember the first time I heard about Marty Weitzman's work was right after I graduated from my master's program, I was working for Billy Pizer, who's an environmental economist at Duke. And we were working on a paper about cap-and-trade. And in one of the comments, or maybe it was in the paper, he referred to something called a modified Weitzman type approach. And I had no idea what that meant at the time. But I tracked the source and figured it out and eventually got to this 1974 paper, and I read it and I didn't totally understand it either at the time, but you know, that, as you say, is his most cited work. So let's spend a little bit of time on it. And can you tell us about how this idea of prices versus quantities applies in environmental context and then what some of it's real world applications have been over time?
Gernot Wagner: Yeah. So you know, in some sense the title says it all, as his sort of, you know, Marty's tack with many of these papers, it's a very pithy title. And it is a truthful one. It is, in fact, on this all important instrument choice question; should we put a price on a particular pollutant, let's say CO2, carbon dioxide, or should we control the quantity? So, you know, concretely what that means is, in many ways, is it a carbon tax or is it a cap-and-trade system? Is it an emissions trading system? And what he identified was that the answer to that question should depend, it does depend on what we don't know. On the uncertainties, on the potential to be wrong. And of course, the point here, right? We are trying to do the "right thing" by choosing the right policy, the welfare maximizing policy.
So what you want to do is, you want to minimize those uncertainties. You want to minimize the potential to be wrong. And that was the excuse for, frankly, doing a bit of math. And then coming up with a very simple equation in the end that frankly, anyways, how many of these papers go, some of the most successful ones; it starts with a very interesting question. Goes through with some, you know, complicated math, complex math, not unnecessarily complicated, but sort of the kind of math you need to answer the question. And then in the end there's sort of this rule of thumb that comes out, and it certainly came out of this paper. And the two second summary of it is, it's about uncertainties of costs, of doing something about a particular pollutant, and uncertainties around the benefits. Now, of course, given this is economics, so it is all about the marginal costs and the marginal benefits. What happens with the next ton of CO2 removed, right? How do the benefits and the costs compare there, and in his paper, and frankly, his work in general, it was about the uncertainties. It was about the not knowing, and it was about minimizing those uncertainties, sort of minimizing the potential to be wrong in this instrument of choice.
Daniel Raimi: Yeah, that makes sense. And thinking about the sort of real world application of the cap-and-trade approach or emissions trading approach. So we have lots of examples of this that have played out over time, whether it's, you know, led in the United States, the European emissions trading system, California's cap-and-trade program, RGGI. There's all these different cap-and-trade programs that are out there. Did you ever hear from Marty, sort of any reflections on the real world application of this idea and how, sort of, he thought it was being carried out in the real world?
Gernot Wagner: Not too much, frankly. You know, sort of a bit in the sense that, he certainly, in no uncertain terms, personally preferred just the simplest possible uniform—global, ideally—carbon tax. He thought it was just, sort of a much simpler approach, much more direct approach than trying to create a cap-and-trade system. Now, frankly, that said, one of the more fun intellectual experiences I’ve had—at the World Congress in Gothenburg, Sweden, a year ago—I had this fortune of sitting on a panel with Marty on the one hand and Jos Delbeke on the other. He famously led the team in the European Commission that created the emissions trading system, sort of the policy godfather of emissions trading in Europe. And you know, the two got along very well, let me go to that way.
And suddenly Marty was very complimentary. So in many ways, he didn't even know, you know, he hadn't known Jos before. Which also speaks to, sort of Marty’s focus on the intellectual backbone as opposed to that sort of policy application. But frankly, he nodded along, he was very complimentary. In many ways, the more Jos got into the details of, you know, this is how it actually happened; he is the reason why we have emissions trading, he is what linkage means to us within the European Union, and so on and so forth. The more, you know, in many ways, that Marty appreciated it. You know, literally live, there on the panel, right in front of a couple of hundred people. Essentially saying, oh yes, you know I still like my carbon tax better than the cap-and-trade system. But I can understand, I can appreciate the complexities of the political economy, the legality, the legal reasons, frankly, why the European Union, frankly, after first considering the carbon tax, ended up choosing to implement the cap-and-trade system.
Daniel Raimi: Yeah, that's really interesting. So let's move on from the prices versus quantities idea and go to another sort of signature piece of Marty's work. And you know, these are just two of many contributions of course, but they’re two that I think are most prominent. The second idea is what he, and I believe you, in your book Climate Shock, referred to as what are called “fat tail risks,” when thinking about decisionmaking around climate change. So can you tell us briefly what is a fat tail, and how does it apply to the problem of climate change?
Gernot Wagner: Sure. I mean, just to be clear, it was very much Marty who introduced this idea into the climate conversation. Yes, I ended up co-authoring a book with him, and yes, the term shows up there, but you know, he invented, he introduced it. He didn't invent the term fat tails, but he applied it first to climate sensitivity. Which is this all-important metric that links concentrations of CO2 in the atmosphere to global average temperatures, eventually, that every one of these three qualifiers is important. And what Marty did in his work was that he spent about a year, basically, digging into the literature on this topic. He read a bunch of the IPCC reports, the intergovernmental panel on climate change, and he literally read them cover to cover.
He sort of had the printed copy on his desk, marked up with his own thoughts in the margins, and he focused, he zeroed in very quickly on this climate sensitivity metric, and basically concluded that the IPCC might have cut off the tails of that distribution too quickly. Or in other words, to the left hand side of this distribution is neat or clear line one can draw because we know that adding CO2 into the atmosphere isn't going to decrease temperature. So that's pretty easy. So it is very much a right skewed distribution. But then on the right hand side, it seems less clear that one can, in fact, cut off these tales fully. And what Marty did was go through the math, and sort of a thought experiment.
So to the naked eye, a thin tailed or fat tail distribution basically look almost the same. That's sort of tight statistical definition of these things. A fat tail distribution approaches zero infinitely slower than a thin tail distribution. So there's all this sort of stuff, which of course matters crucially, but when you draw them you don't really notice a difference. So Marty basically said, wait a second. How could the IPCC, you know, hundreds of climate scientists, seen as sort of the consensus document, how could they possibly conclude to use one of those distributions and not the other?
Daniel Raimi: And just, sorry to jump in, but just for the audience that hasn't taken economics or might not be familiar with what these distributions look like, you sort of imagine a bell curve up on a piece of paper. The fin tail distribution goes to zero on either side of that bell curve relatively quickly. Whereas the fat tail risk, when you get to the right side of that bell curve, it sort of trails off very slowly and takes a really long time to reach zero. So sorry to interrupt, just wanting to get that little context.
Gernot Wagner: Yes it is, right. And so it turns out you could draw, what is still a thin tailed distribution, not to get too technical, but that is also very much skewed in one direction that basically looks, you know like one of these bell shaped curves that has, on the left hand side you'll cut it off quickly, on the right hand side you don't. And that in fact is what the IPC had done, and that's what Marty focused on. So he focused on this right tail. Not because it is likely that we will be in a tail situation like this. Quite the opposite. It is in fact in many ways by definition unlikely that any of these events are the case. But you know, he zeroed in on what are the implications of those potential tail events. And it turns out that while there is a non-zero probability of very, very extreme temperature increases even due to, you know, relatively moderate I would say increases in concentrations of CO2.
In other words, right? Even if we target as a world community, as a policy community, even if we target a particular temperature target and we basically say right, temperatures globally shall not increase above a certain amount, we cannot exclude those extreme scenarios. And that's what led him, Marty, very quickly to what has since become known as the dismal theory, which is to basically say, wait, if you take this seriously, if you take this to its logical conclusion, you cannot exclude those extreme events. Well, what happens? They drive everything. They end up driving everything. And suddenly climate policy, climate change becomes this very explicit risk uncertainty management problem, which you know, many of us are talking about is a risk management problem to begin with sort of an insurance problem. While this drives the point home more so than frankly anything else I'd ever seen up to that point, looking at climate policy, climate change and its implications.
Daniel Raimi: Yeah, that makes sense. And I guess, I mean, one way that I think about this is when we think about the climate sensitivity, so you know, if we are, if the work community targets say 450 parts per million of carbon dioxide in the atmosphere as sort of an end goal, there is still significant uncertainty about how much temperature rise is actually associated with that level of CO2 in the atmosphere. So while this sort of median or the best guess might be that 450 parts per million in the atmosphere leads to two degrees Celsius of warming, there is a non-zero probability that the increase in warming could actually be much, much more, maybe four or five or even higher, in which case the negative impacts of that extreme scenario become incredibly important and become sort of the dominant risk that you really need to think about. And so when you spoke with Marty about this, what are, did he have kind of policy implications that he drew from this work or was he mostly focused on the sort of theoretical side of things and didn't talk much about the application?
Gernot Wagner: Yes and no. So you know, anyone who had known him sort of one of his more famous phrases, at least in person was: “I don't know, I don't know. I can't wrap my head around this,” which of course, really meant that he was sort of 10 steps ahead of you and thinking through the implications and he was already thinking through sort of the exceptions to the rule and so on and so forth. But essentially, you know, the specific policy recommendations he had written himself, in a couple of his papers on this issue, these very pointed paragraphs where he basically says, look, we as economists have this tool kit, we have, for example, benefit cost analysis at our disposal.
Which, you know, tells us, we, you know, we tally the benefits of a particular policy, we tally it costs and we make an informed decision, right? We maximize well being, welfare, human well being, and we sort of figure out what to do. And he basically wrote these sort of very pointed critiques of this approach and saying, you know, these climate economy models—and there's lots of them out there that do this sort of standard benefit cost analysis, most famously of course Bill Nordhaus’s DICE model which has been with us four quarter century plus and is this fantastic tool to allow us to do this benefit cost analysis. And it is very transparent in its assumptions and so on and so forth. Now, Marty’s critique was to essentially say, if you take this dismal theorem seriously you draw this unfortunate, dismal conclusion, which is to say the burden of proof suddenly is on those who say, those tails don't matter.
We can still use our standard benefit cost tools. It is not the other way around. It's not for someone like Marty to have to jump up and down and draw attention to the tail. It's the opposite. It is basically you know, things blowing up, blowing up in such a way that, you know, on a sort of very deep theoretical level, it's not even possible to calculate the mean, the median, the average result. So it's not even possible—if you take this thick fat tailed question seriously—it's not possible to do what economists typically do. And of course, you know, that is a dismal conclusion, right? That's sort of saying: wait a second, on a deeply, you know, theoretical statistical level (not to talk too much statistics here), but in a fat tail distribution, the mean doesn't exist. The expected value, it doesn't exist. You can't actually calculate what economist's calculate. So you have to cut off the tails sooner than a fat tail distribution would allow you to do, because otherwise you can't even do what we as economists typically do in these situations. That is a really, really potent critique of this question and it's like you know, frankly, in many ways Marty himself, I've seen him debate Bill Nordhaus in person on these. I'm fortunate enough to see it as a couple times, you know, the Gala at the Economics Department at Harvard and so on, at a symposium in honor of Marty last October. The conclusion often among, you know, very, very smart economists in the room is, well, Marty is clearly onto something.He has written the most potent critique here, but in many ways we still don't know what to do.
We can't now conclude, okay, and here is what we ought to be doing as a result. We don't have that. He introduces things like, suddenly things go to infinity to negative infinity. And frankly, economists can't typically handle that because, you know, we do trade offs—there is always, you know, on the one hand, on the other hand. Well if you take his conclusion to the logical extreme you can do this, you will, in some sense, you know, we'd have to go back to our caves not, you know, not do anything, not emit any energy because you immediately write every additional gram of CO2 could potentially result in this catastrophe. Now, of course, you know, that's the extreme interpretation and he certainly wouldn't have subscribed to that, but you know, that the logical policy conclusion is we need to do much, much more than we currently do when it comes to cutting here to emissions.
Daniel Raimi: Yeah. Right. That makes sense. So those are, you know, two of many contributions that Marty made to, to this field and, you know, we could talk about them endlessly, I think, and, and many we will continue to talk about the menace endlessly, which is good. But before we close out with our top of the stack question, I wanted to ask you a little bit about Marty as a person. I never got to meet him in person. I wasn't lucky enough. But can you tell us maybe a story or two about him that just helps, gives us a sense of who he was as a person?
Gernot Wagner: Well, actually, maybe from his last year, from the last year now. I have never seen him quite as happy as him losing in a game of Chutes and Ladders against my five year old. So just to be clear, right? So imagine sort of, you know, the most rational human being you've ever met, and that comes pretty close to Marty—very, very, you know, deeply thoughtful about frankly everything. And then he was playing Chutes and Ladders, which, if you know something about that game, it is a game of pure luck. There is literally nothing you can do. So anyway, full stop. It's not chess. It's not, you know, it's none of that—it's pure luck. And he might've lost three games in a row against my five year old, and he was giddy about it.
I mean, it was one of these things were so, we actually were sitting in his study. So the eight year old at the time, so my two kids had piano lessons with Jennifer Weitzman, his wife who was a piano teacher. And that happens sort of frequently on sort of Friday afternoons. So, you know, two out of three times or so, I went there at least to pick up the kids afterwards. And you know, I spent some time with Marty and in this case it happens to be that, you know, he didn't want to do anything else. He didn't want to think about, you know, the current problem. He just wanted to sort of, you know, relax, goof off as it were. And he kept losing against Sonia, and he loved it.
He was sort of like, that was one of these moments where now he was all smiles. He couldn't figure out why he was losing. Of course it was, you know, completely random, turns out. It wasn't that she was particularly good at the game or anything. And he laughed out loud every time, you know, he slipped down a ladder or a shooter, I guess I shoot. That's what he slipped on. But he kept wanting to play, he didn't want to focus on anything else. He certainly didn't want to talk about work at that time. He wanted more, he wanted to keep losing, I guess. So at least trying and maybe, you know, luck will turn for him and maybe he will be able to beat the five year old, which ended up not being the case in that particular 20 minutes.
Anyway, so that's sort of a silly example of course, but there were certain suddenly moments of him, you know, just completely dropping his guard and sort of not thinking about, you know, frankly anything. In this case just fully focused and, you know the flip side of this, he was very focused on whatever he was doing at the time. So, you know, there's some of us who check their Twitter feed while they’re supposed to be doing something else. I'm speaking generally here, not about myself of course. But never, never ever, you know, he certainly didn't do it that, but frankly he focused on the one thing in front of him at any given time. He was not a multitasker. He didn't get distracted easily. When he found his mind wandering in his study, he grabbed his recorder and started playing himself before, you know, 10, 15 minutes later, he was able to refocus again on the task at hand. And sometimes he just, you know, didn't want to do this. Right. Sometimes he just went for a walk, went for a swim, or in this case, you know, played Chutes and Ladders.
Daniel Raimi: That's great. Yeah, wonderful. So literally, he had a recorder in his office?
Gernot Wagner: Yes, he did. He had a collection of them and his wife was a piano teacher and he sometimes played recorder in his study while, you know, she was teaching some kids outside. He was musical himself, certainly.
Daniel Raimi: Yeah. Wonderful. Well Gernot thank you so much again for joining us and sharing these sort of professional and personal insights about your friend and you know, we're so sorry that this is the context that we're having this conversation, but we want to close it out with the same question that we ask all of our guests and I'm going to modify it a little bit. So we typically ask people to recommend something that they've read or watched or listened to recently that they think our audience would enjoy. So I'm going to ask you what's on the top of your stack. What would you recommend and also what's something that you think Marty would recommend? Something he enjoyed maybe along with playing Chutes and Ladders and playing the recorder. What else was he kind of musing on or thinking about or enjoying lately?
Gernot Wagner: Well other than Chutes and Ladders, which might, you know, it was a few months ago to be clear. But actually one of the last conversations I remember having with him, frankly, it wasn't a very uplifting one. It was about David Wallace Wells's book, The Uninhabitable Earth. Which, you know, is a bit of a downer. It's sort of this comprehensive view, one of the latest that looked at, if we put together everything we know about climate change and in some sense try to be honest with ourselves, not try to sort of put a positive spin on things. It just looks much more dismal than frankly, many of us want to believe, want to think about. So I don't know whether Marty read it cover to cover. I really don't. I do remember talking with him about it and I certainly read it myself. It's a not very uplifting read, but I think a very important one on this, what Marty often described as a wicked problem. One of the tougher problems out there to try to get a handle off.
Daniel Raimi: Yeah, that makes sense. I actually, I read that book myself and I sort of have some thoughts on it. You know, I think it certainly did describe some of the most worrisome outcomes. But I think it did lack some nuance in terms of describing kind of what the central estimates were rather than all the worst case scenario estimates. And it's certainly important to think about both of them.
Gernot Wagner: I mean just to be clear, right, David Wallace Wells is very upfront about this and says, look, I'm not here to, you know, plenty of people focus on sort of what's known in many ways. Let's focus here on the uncertainties. What is not necessarily the most likely estimate, right? Not the mean, the median. But basically what could happen and what can we say about this topic that frankly doesn't necessarily show up when one does focus on the means and the medians and the most likely outcome. And how likely are those scenarios. And, you know, the dismal conclusion, if you will, is that they seem more likely than your average newspaper headline would have you believe.
Daniel Raimi: Yeah, okay. Well so certainly another book to add to the stack. I've made it through my version, but others can read it as well and they can come to their own conclusion. So once again, Gernot, thank you so much for joining us and we're so sorry for the loss of your friend and your colleague. I think it's a huge loss for all of us in the environmental community. But thank you for sharing some details about his work and his life and your relationship.
Gernot Wagner: Thank you.
Daniel Raimi: You've been listening to Resources Radio. If you have a minute, we'd really appreciate you leaving us a rating or a comment on your podcast platform of choice. Also, feel free to send us your suggestions for future episodes. Resources Radio is a podcast from Resources for the Future. RFF is an independent nonprofit research institution in Washington DC. Our mission is to improve environmental, energy, and natural resource decisions through impartial economic research policy engagement. Learn more about us at rff.org.
The views expressed on this podcast are solely those of the participants. They do not necessarily represent the views of Resources for the Future, which does not take institutional positions on public policies. Resources Radio is produced by Elizabeth Wason with music by me, Daniel Raimi. Join us next week for another episode.
