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Now or Never: Environmental Protection under Hyperbolic Discounting

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  • Winkler, Ralph

Abstract

The author analyzes the optimal investment in environmental protection in a model of non-overlapping hyperbolically discounting agents. He shows that, in the long run and in the absence of a commitment device, society is stuck in a situation where all agents prefer further investments, yet no agent invests. This holds no matter whether agents are aware of the time inconsistency of their preferences. As a consequence, awareness of the time-inconsistency problem poses at best a short run remedy. Moreover, such an outcome may be Pareto inefficient and may explain the weak performance of long-run environmental policies. --

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File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2009-12
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File URL: http://econstor.eu/bitstream/10419/27532/1/economics_2009-12.pdf
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Bibliographic Info

Article provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.

Volume (Year): 3 (2009)
Issue (Month): 12 ()
Pages: 1-22

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Handle: RePEc:zbw:ifweej:7598

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Related research

Keywords: Environmental policy; environmental protection; hyperbolic discounting; Markov perfect equilibria; time-inconsistency;

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References

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Cited by:
  1. Funk, Matt, 2008. "On the Problem of Vague Terms: A Glossary of Clearly Stated Assumptions & Careful, Patient, Descriptions," MPRA Paper 14505, University Library of Munich, Germany.
  2. Anthoff, David & Tol, Richard S. J. & Yohe, Gary W., 2009. "Discounting for Climate Change," Papers WP276, Economic and Social Research Institute (ESRI).

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