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International Inequity Aversion And The Social Cost Of Carbon

  • RICHARD S. J. TOL

    ()

    (Economic and Social Research Institute, Dublin, Ireland; Institute for Environmental Studies, Vrije Universiteit, Amsterdam, The Netherlands; Department of Spatial Economics, Vrije Universiteit, Amsterdam, The Netherlands)

I define the rate of inequity aversion, distinguishing between the pure rate and the consumption rate. I measure the rate of aversion to inequality in consumption as expressed in the development aid given by rich countries to poor ones between 1965 and 2005. There is an ambiguous relationship between the pure rate of inequity aversion and the consumption rate, driven by the rate of risk aversion. However, for a reasonable choice of the rate of risk aversion, rich countries are shown to be inequity averse, and increasingly so over time. The social cost of carbon is very sensitive to equity weighting and assumptions about the rate of risk and inequity aversion. Estimates of the consumption rate of inequity aversion for recent data suggest that the equity-weighted social cost of carbon is less than 50% larger than the unweighted estimate.

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Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Climate Change Economics.

Volume (Year): 01 (2010)
Issue (Month): 01 ()
Pages: 21-32

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Handle: RePEc:wsi:ccexxx:v:01:y:2010:i:01:p:21-32
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  1. Anthoff, David & Hepburn, Cameron & Tol, Richard S.J., 2009. "Equity weighting and the marginal damage costs of climate change," Ecological Economics, Elsevier, vol. 68(3), pages 836-849, January.
  2. William D. Nordhaus, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 686-702, September.
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  5. Johansson-Stenman, Olof, 2004. "Global environmental problems, efficiency and limited altruism," Working Papers in Economics 139, University of Gothenburg, Department of Economics.
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  7. Martin L. Weitzman, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 703-724, September.
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  12. Azar, Christian & Sterner, Thomas, 1996. "Discounting and distributional considerations in the context of global warming," Ecological Economics, Elsevier, vol. 19(2), pages 169-184, November.
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