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Risk Aversion, Time Preference, and the Social Cost of Carbon

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Author Info

  • David Anthoff

    (Economic and Social Research Institute (ESRI))

  • Richard S. J. Tol

    (Economic and Social Research Institute (ESRI))

  • Gary W. Yohe

    (Wesleyan University)

Abstract

The Stern Review reported a social cost of carbon of over $300/tC, calling for ambitious climate policy. We here conduct a systematic sensitivity analysis of this result on two crucial parameters: the rate of pure time preference, and the rate of risk aversion. We show that the social cost of carbon lies anywhere in between 0 and $120,000/tC. However, if we restrict these two parameters to match observed behavior, an expected social cost of carbon of $60/tC results. If we correct this estimate for income differences across the world, the social cost of carbon rises to over $200/tC.

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File URL: http://www.esri.ie/UserFiles/publications/20080904135651/WP252.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by Economic and Social Research Institute (ESRI) in its series Papers with number WP252.

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Length: 34 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:esr:wpaper:wp252

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References

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  1. David Evans & Haluk Sezer, 2004. "Social discount rates for six major countries," Applied Economics Letters, Taylor & Francis Journals, vol. 11(9), pages 557-560.
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Cited by:
  1. Tol, Richard S. J., 2008. "The Economic Impact of Climate Change," Papers WP255, Economic and Social Research Institute (ESRI).
  2. Atkinson, Giles D. & Dietz, Simon & Helgeson, Jennifer & Hepburn, Cameron & Sælen, Håkon, 2009. "Siblings, not triplets: social preferences for risk, inequality and time in discounting climate change," Economics Discussion Papers 2009-14, Kiel Institute for the World Economy.
  3. Kopp, Robert E. & Mignone, Bryan K., 2012. "The US government's social cost of carbon estimates after their first two years: Pathways for improvement," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6(15), pages 1-41.
  4. Marc D. Davidson, 2012. "Intergenerational Justice: How Reasonable Man Discounts Climate Damage," Sustainability, MDPI, Open Access Journal, vol. 4(1), pages 106-122, January.
  5. repec:hal:ciredw:hal-00866414 is not listed on IDEAS
  6. Steve Newbold & Charles Griffiths & Christopher C. Moore & Ann Wolverton & Elizabeth Kopits, 2010. "The "Social Cost of Carbon" Made Simple," NCEE Working Paper Series 201007, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Aug 2010.
  7. repec:hal:wpaper:hal-00866414 is not listed on IDEAS
  8. Marlos Goes & Nancy Tuana & Klaus Keller, 2011. "The economics (or lack thereof) of aerosol geoengineering," Climatic Change, Springer, vol. 109(3), pages 719-744, December.
  9. Kousky, Carolyn & Kopp, Robert E. & Cooke, Roger, 2011. "Risk premia and the social cost of carbon: A review," Economics Discussion Papers 2011-19, Kiel Institute for the World Economy.
  10. Baum, Seth D., 2009. "Description, prescription and the choice of discount rates," Ecological Economics, Elsevier, vol. 69(1), pages 197-205, November.

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