Risk Aversion, Intergenerational Equity and Climate Change
The paper investigates a climate-economy model with an iso-elastic welfare function in which one parameter γ measures relative risk-aversion and a distinct parameter ρ 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 γ but lower ρ leads to increase emissions control. We also argue that climate-economy models based on intertemporal expected utility maximization, i.e. models where γ=ρ, may misinterpret the sensitivity of the climate policy to risk-aversion. Copyright Kluwer Academic Publishers 2004
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Volume (Year): 28 (2004)
Issue (Month): 2 (June)
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