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Back of the envelope

November 29th, 2002

A while ago, I blogged on the economics of a war with Iraq, suggesting that a long occupation would cost around $US100 billion per year. This was a ‘back-of-the-envelope’ estimate. Yale economist William Nordhaus has now present a range of estimates of the cost of a war, which are broadly consistent with this. For the total cost over ten years he gives estimates ranging from $121 billion for a quick war with an easy exit to $1500 billion for a prolonged occupation with adverse impacts on oil markets. I’d go for something towards the upper end of this range 5-10 years of occupation at $100 billion per year.

I don’t always agree with Nordhaus. On global warming for example I think he places too little weight on adjustment costs and hardly any on species extinction. But he’s very able and, if you accept his assumptions, he generally gets the implications right. So I’m glad my envelope is consistent with his more detailed analysis.

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