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Numerical analysis of non-constant pure rate of time preference: A model of climate policy

  • Fujii, Tomoki
  • Karp, Larry

When current decisions affect welfare in the far-distant future, as with climate change, the use of a declining pure rate of time preference (PRTP) provides potentially important modeling flexibility. The difficulty of analyzing models with non-constant PRTP limits their application. We describe and provide software (available online) to implement an algorithm to numerically obtain a Markov perfect equilibrium for an optimal control problem with non-constant PRTP. We apply this software to a simplified version of the numerical climate change model used in the Stern Review. For our calibration, the policy recommendations are less sensitive to the PRTP than widely believed.

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File URL: http://www.sciencedirect.com/science/article/pii/S0095-0696(08)00022-3
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Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 56 (2008)
Issue (Month): 1 (July)
Pages: 83-101

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Handle: RePEc:eee:jeeman:v:56:y:2008:i:1:p:83-101
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622870

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