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Numerical Analysis of Non-Constant Discounting with an Application to Renewable Resource Management

  • Fujii, Tomoki
  • Karp, Larry

The possibility of non-constant discounting is important in environmental and resource management problems where current decisions affect welfare in the far-distant future, as with climate change. The difficulty of analyzing models with non-constant discounting limits their application. We describe and provide software to implement an algorithm to numerically obtain a Markov Perfect Equilibrium for an optimal control problem with non-constant discounting. The software is available online. We illustrate the approach by studying welfare and observational equivalence for a particular renewable resource management problem.

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Paper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number qt74q473v8.

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Date of creation: 31 May 2006
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Handle: RePEc:cdl:agrebk:qt74q473v8
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  1. repec:cup:cbooks:9780521637329 is not listed on IDEAS
  2. 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.
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  9. Hansen, Lars Peter & Sargent, Thomas J., 1980. "Formulating and estimating dynamic linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 7-46, May.
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  12. Ben Groom & Cameron Hepburn & Phoebe Koundouri & David Pearce, 2005. "Declining Discount Rates: The Long and the Short of it," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 32(4), pages 445-493, December.
  13. Gollier, Christian, 2002. "Discounting an uncertain future," Journal of Public Economics, Elsevier, vol. 85(2), pages 149-166, August.
  14. 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.
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