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Discounting and Welfare Analysis Over Time: Choosing the ç

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Author Info
Jan Schumacher ()
Wolfgang Buchholz ()

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Abstract

Based on the Ramsey equation and an ethically motivated rejection of pure utility time discount, the Stern Review on the Economics of Climate Change concentrates on the use of the elasticity of marginal utility ç in the intergenerational social welfare function. We support this position by showing that, also from the view point of sustainability, application of ç is preferable to the use of the pure time discount parameter ñ when a balanced distribution of utility across generations is to be brought about. After reviewing empirical studies on the size of ç we develop a novel axiomatic approach based on non–envy criteria by which we obtain values for ç lying in a range between 1 and 2. Whereas the starting point of the Stern Review quite explicitly is an ethical one, many critics of the Review deny this ethical stance and thus – as described in our paper – miss a crucial element of the Stern Review.

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Publisher Info
Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 2230.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2230

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Related research
Keywords: Ramsey equation discounting sustainability non-envy

References listed on IDEAS
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  1. William D. Nordhaus, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 686-702, September.
  2. Martin L. Weitzman, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 703-724, September.
  3. GOLLIER, Christian, 2006. "An Evaluation of Stern's Report on the Economics of Climate Change," IDEI Working Papers 464, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  4. Kenneth Arrow, 2007. "Global Climate Change: A Challenge to Policy," The Economists' Voice, Berkeley Electronic Press, vol. 4(3), pages 2. [Downloadable!]
  5. John Creedy, 2006. "Evaluating Policy: Welfare Weights And Value Judgements," Department of Economics - Working Papers Series 971, The University of Melbourne. [Downloadable!]
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This page was last updated on 2008-7-30.


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