Climate Policy When The Distant Future Matters: Catastrophic Events With Hyperbolic Discounting

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Climate Policy When The Distant Future Matters: Catastrophic Events With Hyperbolic Discounting

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Karp, Larry
Tsur, Yacov

Additional information is available for the following registered author(s):

Larry S. Karp

Abstract

Low probability catastrophic climate change can have a signifcant influence on policy under hyperbolic discounting. We compare the set of Markov Perfect Equilibria (MPE) to the optimal policy under time-consistent commitment. For some initial levels of risk there are multiple MPE; these may involve either excessive or insufficient stabilization effort. These results imply that even if the free-rider problem amongst contemporaneous decision-makers were solved, there may remain a coordination problem amongst successive generations of decision-makers. A numerical example shows that under plausible conditions society should respond vigorously to the threat of climate change.

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Paper provided by Hebrew University of Jerusalem, Department of Agricultural Economics and Management in its series Discussion Papers with number 7181.

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Date of creation: 2007
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Handle: RePEc:ags:huaedp:7181

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Paper
- Larry Karp & Yacov Tsur, 2007. "Climate Policy When the Distant Future Matters: Catastrophic Events with Hyperbolic Discounting," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 1037, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Larry Karp & Yacov Tsur, 2007. "Discounting and Climate Change Policy," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 1038, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]
Other versions:
- Karp, Larry & Tsur, Yacov, 2007. "Discounting And Climate Change Policy," Discussion Papers 7149, Hebrew University of Jerusalem, Department of Agricultural Economics and Management. [Downloadable!]

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