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Numerical analysis of non-constant pure rate of time preference: A model of climate policy

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  • Fujii, Tomoki
  • Karp, Larry

Abstract

When current decisions affect welfare in the far-distant future, as with climate change, the use of a declining pure rate of time preference (PRTP) provides potentially important modeling flexibility. The difficulty of analyzing models with non-constant PRTP limits their application. We describe and provide software (available online) to implement an algorithm to numerically obtain a Markov perfect equilibrium for an optimal control problem with non-constant PRTP. We apply this software to a simplified version of the numerical climate change model used in the Stern Review. For our calibration, the policy recommendations are less sensitive to the PRTP than widely believed.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 56 (2008)
Issue (Month): 1 (July)
Pages: 83-101

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Handle: RePEc:eee:jeeman:v:56:y:2008:i:1:p:83-101

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Web page: http://www.elsevier.com/locate/inca/622870

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  1. Li, Chuan-Zhong & Lofgren, Karl-Gustaf, 2000. "Renewable Resources and Economic Sustainability: A Dynamic Analysis with Heterogeneous Time Preferences," Journal of Environmental Economics and Management, Elsevier, vol. 40(3), pages 236-250, November.
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  10. Karp, Larry, 2007. "Non-constant discounting in continuous time," Journal of Economic Theory, Elsevier, vol. 132(1), pages 557-568, January.
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  15. Christian Gollier & Richard Zeckhauser, 2005. "Aggregation of Heterogeneous Time Preferences," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 878-896, August.
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Citations

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Cited by:
  1. Winkler, Ralph, 2009. "Now or Never: Environmental Protection under Hyperbolic Discounting," Economics Discussion Papers 2009-4, Kiel Institute for the World Economy.
  2. Iverson, Terrence, 2012. "Optimal Carbon Taxes with Non-Constant Time Preference," MPRA Paper 43264, University Library of Munich, Germany.
  3. Larry S. Karp, 2009. "Sacrifice, Discounting and Climate Policy: Five Questions," CESifo Working Paper Series 2761, CESifo Group Munich.
  4. Gersbach, Hans & Hummel, Noemi, 2011. "Climate Policy and Developing Countries," CEPR Discussion Papers 8685, C.E.P.R. Discussion Papers.
  5. Jesus Marin-Solano & Concepcio Patxot, 2009. "Discounting Arduousness," Working Papers in Economics 230, Universitat de Barcelona. Espai de Recerca en Economia.
  6. Fujii, Tomoki, 2013. "Modeling myopia: Application to non-renewable resource extraction," Mathematical Social Sciences, Elsevier, vol. 66(2), pages 95-104.
  7. Garth Heutel, 2012. "How Should Environmental Policy Respond to Business Cycles? Optimal Policy under Persistent Productivity Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 244-264, April.
  8. Breton, Michèle & Keoula, Michel Yevenunye, 2014. "A great fish war model with asymmetric players," Ecological Economics, Elsevier, vol. 97(C), pages 209-223.

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