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Intergenerationally Equitable Discounting and its Implications for Climate Policy

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  • Hiroaki Sakamoto
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    Abstract

    This paper investigates the properties of intergenerationally equitable dis- counting by using an axiomatically well-founded welfare function which was originally developed by Epstein (1983), and more recently extended by Bommier and Zuber (2008). In stead of seeking for the appropriate value of social rate of time preference, intergenerational equity is incorpo- rated at axiomatic level. I show that the intergenerational-equity-consistent (IE-consistent) discount rate can be higher or lower than the standard no- time-preference case without appealing to uncertainty. The relationship between IE-consistent discount rates and risk of world extinction is also examined with an emphasis on the case where the hazard rate is endoge- nously determined. With an application to climate change, I show that endogenous hazard rate can increase the discount rate, which implies rel- atively less stringent carbon abatement as the optimal climate policy.

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    File URL: http://www.econ.kyoto-u.ac.jp/projectcenter/Paper/e-09-004.pdf
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    Bibliographic Info

    Paper provided by Graduate School of Economics Project Center, Kyoto University in its series Discussion papers with number e-09-004.

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    Length: 37 pages
    Date of creation: Mar 2010
    Date of revision:
    Handle: RePEc:kue:dpaper:e-09-004

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    Related research

    Keywords: Intergenerational Equity; Discounting; Climate Change; Uncertainty; Endogenous Hazard Rate;

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    References

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    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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    1. Ikefuji, M. & Magnus, J.R. & Sakamoto, H., 2010. "Climate Change, Economic Growth, and Health," Discussion Paper, Tilburg University, Center for Economic Research 2010-86, Tilburg University, Center for Economic Research.
    2. Anthony Fisher & Urvashi Narain, 2003. "Global Warming, Endogenous Risk, and Irreversibility," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 25(4), pages 395-416, August.
    3. Antoine Bommier & St├ęphane Zuber, 2008. "Can preferences for catastrophe avoidance reconcile social discounting with intergenerational equity?," Social Choice and Welfare, Springer, Springer, vol. 31(3), pages 415-434, October.
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