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Social time preference and the optimal carbon price

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  • Ross Guest

Abstract

This article examines the implications of alternative social time preference assumptions for the optimal carbon price by numerical simulations of a simple Ramsey model. Three specifications of social time preferences are compared: a constant social time preference rate (stpr), decreasing social impatience or hyperbolic social preferences and increasing social impatience. The results show nontrivial effects on the optimal carbon price. The policy implication is that value judgements about intergenerational welfare, reflected in stpr, have implications for policies aimed at achieving a target carbon price. These value judgements therefore ought to be made explicit in setting target carbon prices over time.

Suggested Citation

  • Ross Guest, 2011. "Social time preference and the optimal carbon price," Applied Economics Letters, Taylor & Francis Journals, vol. 18(12), pages 1163-1166.
  • Handle: RePEc:taf:apeclt:v:18:y:2011:i:12:p:1163-1166
    DOI: 10.1080/13504851.2010.528352
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    1. Heal, G., 1998. "Valuing the Future: Economic Theory and Sustainability," Papers 98-10, Columbia - Graduate School of Business.
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