Climate Policy When The Distant Future Matters: Catastrophic Events With Hyperbolic Discounting
Low probability catastrophic climate change can have a signifcant influence on policy under hyperbolic discounting. We compare the set of Markov Perfect Equilibria (MPE) to the optimal policy under time-consistent commitment. For some initial levels of risk there are multiple MPE; these may involve either excessive or insufficient stabilization effort. These results imply that even if the free-rider problem amongst contemporaneous decision-makers were solved, there may remain a coordination problem amongst successive generations of decision-makers. A numerical example shows that under plausible conditions society should respond vigorously to the threat of climate change.
|Date of creation:||2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://departments.agri.huji.ac.il/economics/indexe.html
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Martin L. Weitzman, 1998.
Harvard Institute of Economic Research Working Papers
1843, Harvard - Institute of Economic Research.
- Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
- Tsur, Yacov & Zemel, Amos, 1996. "Accounting for global warming risks: Resource management under event uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 20(6-7), pages 1289-1305.
- Skiba, A K, 1978. "Optimal Growth with a Convex-Concave Production Function," Econometrica, Econometric Society, vol. 46(3), pages 527-39, May.
- Partha Dasgupta & Eric Maskin, 2004.
"Uncertainty and Hyperbolic Discounting,"
Economics Working Papers
0023, Institute for Advanced Study, School of Social Science.
- Cropper, M. L., 1976. "Regulating activities with catastrophic environmental effects," Journal of Environmental Economics and Management, Elsevier, vol. 3(1), pages 1-15, June.
- Karp, Larry, 2004.
"Non-Constant Discounting in Continuous Time,"
Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series
qt7pr05084, Department of Agricultural & Resource Economics, UC Berkeley.
- Karp, Larry, 2004. "Non-constant discounting in continuous time," CUDARE Working Paper Series 0969, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
- Karp, Larry, 2005. "Non-Constant Discounting in Continuous Time," Institute for Research on Labor and Employment, Working Paper Series qt0nn1t22z, Institute of Industrial Relations, UC Berkeley.
- Cropper, Maureen & Laibson, David, 1998. "The implications of hyperbolic discounting for project evaluation," Policy Research Working Paper Series 1943, The World Bank.
- Graciela Chichilnisky & Geoffrey Heal, 1993.
"Global Environmental Risks,"
Journal of Economic Perspectives,
American Economic Association, vol. 7(4), pages 65-86, Fall.
- William D. Nordhaus, 2006. "The "Stern Review" on the Economics of Climate Change," NBER Working Papers 12741, National Bureau of Economic Research, Inc.
- Wolfram Schlenker & W. Michael Hanemann & Anthony C. Fisher, 2006. "The Impact of Global Warming on U.S. Agriculture: An Econometric Analysis of Optimal Growing Conditions," The Review of Economics and Statistics, MIT Press, vol. 88(1), pages 113-125, February.
- Clarke, Harry R. & Reed, William J., 1994. "Consumption/pollution tradeoffs in an environment vulnerable to pollution-related catastrophic collapse," Journal of Economic Dynamics and Control, Elsevier, vol. 18(5), pages 991-1010, September.
- Hartwick, John M, 1977.
"Intergenerational Equity and the Investing of Rents from Exhaustible Resources,"
American Economic Review,
American Economic Association, vol. 67(5), pages 972-74, December.
- John Hartwick, 1976. "Intergenerational Equity and the Investing of Rents from Exhaustible Resources," Working Papers 220, Queen's University, Department of Economics.
- Graciela Chichilnisky, 1996.
"An axiomatic approach to sustainable development,"
Social Choice and Welfare,
Springer, vol. 13(2), pages 231-257, April.
- Asheim, Geir & Buchholz, Wolfgang, 2003.
"A General Approach to Welfare Measurement through National Income Accounting,"
32/2002, Oslo University, Department of Economics.
- Geir B. Asheim & Wolfgang Buchholz, 2004. "A General Approach to Welfare Measurement through National Income Accounting," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(2), pages 361-384, 06.
- Geir B. Asheim & Wolfgang Buchholz, 2002. "A General Approach to Welfare Measurement through National Income Accounting," CESifo Working Paper Series 831, CESifo Group Munich.
- Krugman, Paul, 1991. "History versus Expectations," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 651-67, May.
- Karp, Larry S, 2004.
"Global warming and hyperbolic discounting,"
CUDARE Working Paper Series
0934R, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
- Karp, Larry, 2004. "Global Warming and Hyperbolic Discounting," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt5zh730nc, Department of Agricultural & Resource Economics, UC Berkeley.
- Gollier, Christian, 2002. "Discounting an uncertain future," Journal of Public Economics, Elsevier, vol. 85(2), pages 149-166, August.
- Tsur, Yacov & Zemel, Amos, 1998. "Pollution control in an uncertain environment," Journal of Economic Dynamics and Control, Elsevier, vol. 22(6), pages 967-975, June.
- Chakravorty, Ujjayant & Roumasset, James & Tse, Kinping, 1997. "Endogenous Substitution among Energy Resources and Global Warming," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1201-34, December.
When requesting a correction, please mention this item's handle: RePEc:ags:huaedp:7181. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
If references are entirely missing, you can add them using this form.