Good paper on the shortcomings of IAMs and the way in which the damage function is constructed"One of the most important parts of an IAM is the damage function, i.e., the relationship
between an increase in temperature and GDP (or the growth rate of GDP). When
assessing climate sensitivity, we can at least draw on the underlying physical science and
argue coherently about the relevant probability distributions. But when it comes to the
damage function, we know virtually nothing – there is no theory and no data that we can
draw from. As a result, developers of IAMs simply make up arbitrary functional forms
and corresponding parameter values."
"IAMs can tell us nothing about the likelihood or possible impact of a catastrophic climate
outcome, e.g., a temperature increase above 5°C that has a very large impact on GDP.
And yet it is the possibility of a climate catastrophe that is (or should be) the main driving
force behind a stringent abatement policy."
http://web.mit.edu/rpindyck/www/Papers/PindyckClimateModels2015.pdf