Time perspective and climate change policy
AbstractThe tendency to foreshorten time units as we peer further into the future provides an explanation for hyperbolic discounting at an intergenerational time scale. We study implications of hyperbolic discounting for climate change policy, when the probability of a climate-induced catastrophe depends on the stock of greenhouse gasses. We provide a positive analysis by characterizing the set of Markov perfect equilibria (MPE) of the intergenerational game amongst a succession of policymakers. Each policymaker reflects her generationâ€™s preferences, including its hyperbolic discounting. For a binary action game, we compare the MPE set to a â€œrestricted commitmentâ€ benchmark. We compare the associated â€œconstant equivalent discount ratesâ€ and the willingness to pay to control climate change with assumptions and recommendations in the Stern Review on Climate Change. â€œ. . .My picture of the world is drawn in perspective. . . I apply my perspective not merely to space but also to timeâ€ â€”Ramsey.
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Bibliographic InfoPaper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number qt04k4b21g.
Date of creation: 01 Jul 2008
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hyperbolic discounting; Markov Perfect Equilibria; catastrophic climate change; uncertainty;
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