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Global Warming and Hyperbolic Discounting

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Author Info
Larry Karp (University of California, Berkeley and Giannini Foundation)

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Abstract

The use of a constant discount rate to study long-lived environmental problems such as global warming has two disadvantages: the prescribed policy is sensitive to the discount rate, and with moderate discount rates, large future damages have almost no effect on current decisions. Time-consistent quasi-hyperbolic discounting alleviates both of these modeling problems, and is a plausible description of how people think about the future. We analyze the time-consistent Markov Perfect equilibrium in a general model with a stock pollutant. The solution to the linear-quadratic specialization illustrates the role of hyperbolic discounting in a model of global warming.

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Publisher Info
Paper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number 934R.

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Date of creation: 09 Jul 2004
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Handle: RePEc:cdl:agrebk:934r

Note: oai:cdlib1:are_ucb-1086
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Related research
Keywords: stock pollutant; hyperbolic discounting; global warming; time consistency;

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  1. Winkler, Ralph, 2009. "Now or Never: Environmental Protection under Hyperbolic Discounting," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 3(12), pages 1-22. [Downloadable!]
    Other versions:
  2. Ralph Winkler, 2008. "Optimal compliance with emission constraints: dynamic characteristics and the choice of technique," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 39(4), pages 411-432, April. [Downloadable!] (restricted)
  3. Larry Karp, 2004. "Non-Constant Discounting in Continuous Time," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 969, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]
    Other versions:
  4. Larry S. Karp, 2009. "Sacrifice, Discounting and Climate Policy: Five Questions," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  5. Larry Karp & Jinhua Zhao, 2008. "A Proposal for the Design of the Successor to the Kyoto Protocol," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 1065, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]
  6. 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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  7. McLeish, Kendra N & Oxoby, Robert J, 2006. "Measuring Impatience: Elicited Discount Rates and the Barratt Impulsiveness Scale," MPRA Paper 1524, University Library of Munich, Germany. [Downloadable!]
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  8. Reuben, Ernesto & Sapienza, Paola & Zingales, Luigi, 2008. "Time discounting for primary and monetary rewards," MPRA Paper 10650, University Library of Munich, Germany. [Downloadable!]
  9. 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!]
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  10. Larry Karp & Yacov Tsur, 2008. "Time perspective and climate change policy," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 1062, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]
  11. Kendra N. McLeish & Robert J. Oxoby, 2007. "Gender, Affect and Intertemporal Consistency: An Experimental Approach," IZA Discussion Papers 2663, Institute for the Study of Labor (IZA). [Downloadable!]
  12. Tomoki Fujii & Larry Karp, 2006. "Numerical Analysis of Non-Constant Discounting with an Application to Renewable Resource Management," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 1019, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]
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