Discounting the Future: the Case of Climate Change
AbstractAccording to the Stern Report on climate change, the course of the next fifty years is set: present policies will impact only in the very long term, fifty to two hundred years from now. There is no market for interest rates, so far into the future, and economists must find other ways to set interest rates in a coherent way. This paper reviews some of the methods which have been used. We start with the classical Ramsey model of economic growth, which remains a central reference in the current debate, and we study the determinants of the interest rate in that framework. We then adapt the model (and the results) to take into account various concerns, namely (a) the existence of the environment as a distinct, non-producible good, (b) uncertainty on the parameters or on the model (c) intergenerational equity.
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Bibliographic InfoPaper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/3682.
Date of creation: 2010
Date of revision:
Publication status: Published in Cahiers de la Chaire Finance et Développement Durable, 2010
Interest Rates; Climate Change; Long-Term Policy Making; Growth Models;
Find related papers by JEL classification:
- Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
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