Global Warming and Hyperbolic Discounting
The use of a constant discount rate to study long-lived environmental problems such as global warming has two disadvantages: the prescribed policy is sensitive to the discount rate, and with moderate discount rates, large future damages have almost no effect on current decisions. Time-consistent quasi-hyperbolic discounting alleviates both of these modeling problems, and is a plausible description of how people think about the future. We analyze the time-consistent Markov Perfect equilibrium in a general model with a stock pollutant. The solution to the linear-quadratic specialization illustrates the role of hyperbolic discounting in a model of global warming.
|Date of creation:||09 Jul 2004|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (510) 642-3345
Fax: (510) 643-8911
Web page: http://www.escholarship.org/repec/are_ucb/
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, 2001.
American Economic Review,
American Economic Association, vol. 91(1), pages 260-271, March.
- Martin L. Weitzman, 1998. "Gamma Discounting," 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.
- 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.
- 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.
- Tsutsui, Shunichi & Mino, Kazuo, 1990. "Nonlinear strategies in dynamic duopolistic competition with sticky prices," Journal of Economic Theory, Elsevier, vol. 52(1), pages 136-161, October.
- V.V. Chari & Patrick J. Kehoe, 1989.
122, Federal Reserve Bank of Minneapolis.
- Karp, Larry, 1995.
"Depreciation Erodes the Coase Conjecture,"
Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series
qt1fs6j5nn, Department of Agricultural & Resource Economics, UC Berkeley.
- Karp, L., 1992. "Depreciation erodes the coase conjecture," Discussion Paper Series In Economics And Econometrics 9210, Economics Division, School of Social Sciences, University of Southampton.
- Pizer, William & Newell, Richard, 2000.
"Discounting the Distant Future: How Much Do Uncertain Rates Increase Valuations?,"
dp-00-45, Resources For the Future.
- Newell, Richard G. & Pizer, William A., 2003. "Discounting the distant future: how much do uncertain rates increase valuations?," Journal of Environmental Economics and Management, Elsevier, vol. 46(1), pages 52-71, July.
- Chari, V V & Kehoe, Patrick J, 1993.
"Sustainable Plans and Mutual Default,"
Review of Economic Studies,
Wiley Blackwell, vol. 60(1), pages 175-95, January.
- Christopher Harris & David Laibson, 1999.
"Dynamic Choices of Hyperbolic Consumers,"
Harvard Institute of Economic Research Working Papers
1886, Harvard - Institute of Economic Research.
- Rabin, Matthew, 1997.
"Psychology and Economics,"
Department of Economics, Working Paper Series
qt8jd5z5j2, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Ariel Rubinstein, 2003. ""Economics and Psychology"? The Case of Hyperbolic Discounting," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1207-1216, November.
- Gollier, Christian, 2002. "Time Horizon and the Discount Rate," Journal of Economic Theory, Elsevier, vol. 107(2), pages 463-473, December.
- Heal, G., 1998. "Valuing the Future: Economic Theory and Sustainability," Papers 98-10, Columbia - Graduate School of Business.
- Read, Daniel, 2001. " Is Time-Discounting Hyperbolic or Subadditive?," Journal of Risk and Uncertainty, Springer, vol. 23(1), pages 5-32, July.
- Heal, Geoffrey, 2005. "Intertemporal Welfare Economics and the Environment," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 3, chapter 21, pages 1105-1145 Elsevier.
- Li, Chuan-Zhong & Lofgren, Karl-Gustaf, 2000. "Renewable Resources and Economic Sustainability: A Dynamic Analysis with Heterogeneous Time Preferences," Journal of Environmental Economics and Management, Elsevier, vol. 40(3), pages 236-250, November.
When requesting a correction, please mention this item's handle: RePEc:cdl:agrebk:qt5zh730nc. 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: (Lisa Schiff)
If references are entirely missing, you can add them using this form.