Climate Change, Catastrophic Risk and the Relative Unimporartance of Discounting
AbstractDiscounting in the presence of catastrophic risk is a hotly debated issue, in particular with respect to climate change. Many scientists and laymen concerned with potentially catastrophic impacts feel that if an increase in the discount rate drastically increases the likelihood of catastrophic outcomes, this discredits economic cost-benefit calculations. This paper argues that this intuition is sound and that if cost-benefit calculations are done within a model that encompasses the type of catastrophic risk that these scientists worry about, the resulting stabilization target will only be slightly influenced by the discount rate. This is shown within a stylized model of a risk neutral decision maker facing a problem with a catastrophic threshold with unknown location.
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Bibliographic InfoPaper provided by Oslo University, Department of Economics in its series Memorandum with number 28/2008.
Length: 12 pages
Date of creation: 01 Nov 2008
Date of revision:
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Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
Web page: http://www.oekonomi.uio.no/indexe.html
More information through EDIRC
climate change; discounting; catastrophic risk; optimal control;
Find related papers by JEL classification:
- A10 - General Economics and Teaching - - General Economics - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-02-14 (All new papers)
- NEP-ENE-2009-02-14 (Energy Economics)
- NEP-ENV-2009-02-14 (Environmental Economics)
- NEP-RES-2009-02-14 (Resource Economics)
- NEP-UPT-2009-02-14 (Utility Models & Prospect Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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