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Time perspective and climate change policy

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  • Karp, Larry
  • Tsur, Yacov

Abstract

The tendency to foreshorten time units as we peer further into the future provides an explanation for hyperbolic discounting at an inter-generational time scale. We study implications of hyperbolic discounting for climate change policy, when the probability of a climate-induced catastrophe depends on the stock of greenhouse gasses. We characterize the set of Markov perfect equilibria (MPE) of the inter-generational game amongst a succession of policymakers. Each policymaker reflects her generation's preferences, including its hyperbolic discounting. For a binary action game, we compare the MPE set to a "restricted commitment" benchmark. We compare the associated "constant-equivalent discount rates" and the willingness to pay to control climate change with assumptions and recommendations in the Stern Review on Climate Change. "...My picture of the world is drawn in perspective.... I apply my perspective not merely to space but also to time"--Ramsey.

Suggested Citation

  • Karp, Larry & Tsur, Yacov, 2011. "Time perspective and climate change policy," Journal of Environmental Economics and Management, Elsevier, vol. 62(1), pages 1-14, July.
    • Handle: RePEc:eee:jeeman:v:62:y:2011:i:1:p:1-14
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