Risk aversion, intergenerational equity and climate change
AbstractThe paper investigates a climate-economy model with an iso-elastic welfare function in which one parameter gamma measures relative risk-aversion and a distinct parameter rho measures resistance to intertemporal substitution. We show both theoretically and numerically that climate policy responds differently to variations in the two parameters. In particular, we show that higher gamma but lower rho leads to increase emissions control. We also argue that climate-economy models based on intertemporal expected utility maximization, i.e. models where gamma = rho, may misinterpret the sensitivity of the climate policy to risk-aversion.
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Bibliographic InfoPaper provided by HAL in its series Post-Print with number halshs-00000680.
Date of creation: Jun 2004
Date of revision:
Publication status: Published, Environmental and Resource Economics, 2004, 28, 2, 195-207
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00000680/en/
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risk aversion; equity; discounting; climate change;
Other versions of this item:
- Minh Ha-Duong & Nicolas Treich, 2004. "Risk Aversion, Intergenerational Equity and Climate Change," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 28(2), pages 195-207, June.
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