IDEAS home Printed from https://ideas.repec.org/p/esr/wpaper/wp252.html
   My bibliography  Save this paper

Risk Aversion, Time Preference, and the Social Cost of Carbon

Author

Listed:
  • David Anthoff

    (Economic and Social Research Institute (ESRI))

  • Richard S. J. Tol

    (Economic and Social Research Institute (ESRI))

  • Gary W. Yohe

    (Wesleyan University)

Abstract

The Stern Review reported a social cost of carbon of over $300/tC, calling for ambitious climate policy. We here conduct a systematic sensitivity analysis of this result on two crucial parameters: the rate of pure time preference, and the rate of risk aversion. We show that the social cost of carbon lies anywhere in between 0 and $120,000/tC. However, if we restrict these two parameters to match observed behavior, an expected social cost of carbon of $60/tC results. If we correct this estimate for income differences across the world, the social cost of carbon rises to over $200/tC.

Suggested Citation

  • David Anthoff & Richard S. J. Tol & Gary W. Yohe, 2008. "Risk Aversion, Time Preference, and the Social Cost of Carbon," Papers WP252, Economic and Social Research Institute (ESRI).
    • Handle: RePEc:esr:wpaper:wp252
    as

    Download full text from publisher

    File URL: https://www.esri.ie/pubs/WP252.pdf
    File Function: First version, 2008
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. David Evans & Haluk Sezer, 2004. "Social discount rates for six major countries," Applied Economics Letters, Taylor & Francis Journals, vol. 11(9), pages 557-560.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Richard S J Tol, 2018. "The Economic Impacts of Climate Change," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 12(1), pages 4-25.
    2. Steve Newbold & Charles Griffiths & Christopher C. Moore & Ann Wolverton & Elizabeth Kopits, 2010. "The "Social Cost of Carbon" Made Simple," NCEE Working Paper Series 201007, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Aug 2010.
    3. Patrice Dumas & Etienne Espagne & Baptiste Perrissin-Fabert & Antonin Pottier, 2012. "Comprehensive Description of RESPONSE," Working Papers hal-00866414, HAL.
    4. Helgeson, Jennifer & Dietz, Simon & Atkinson, Giles D. & Hepburn, Cameron & Sælen, Håkon, 2009. "Siblings, not triplets: social preferences for risk, inequality and time in discounting climate change," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-28.
    5. Marlos Goes & Nancy Tuana & Klaus Keller, 2011. "The economics (or lack thereof) of aerosol geoengineering," Climatic Change, Springer, vol. 109(3), pages 719-744, December.
    6. Marc D. Davidson, 2012. "Intergenerational Justice: How Reasonable Man Discounts Climate Damage," Sustainability, MDPI, vol. 4(1), pages 1-17, January.
    7. Elizabeth A. Stanton & Frank Ackerman, 2009. "Climate and development economics: Balancing science, politics and equity," Natural Resources Forum, Blackwell Publishing, vol. 33(4), pages 262-273, November.
    8. Kousky, Carolyn & Kopp, Robert E. & Cooke, Roger M., 2011. "Risk premia and the social cost of carbon: A review," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 5, pages 1-24.
    9. Baum, Seth D., 2009. "Description, prescription and the choice of discount rates," Ecological Economics, Elsevier, vol. 69(1), pages 197-205, November.
    10. Kopp, Robert E. & Mignone, Bryan K., 2012. "The US government's social cost of carbon estimates after their first two years: Pathways for improvement," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 6, pages 1-41.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hala Abu-Kalla & Ruslana Rachel Palatnik & Ofira Ayalon & Mordechai Shechter, 2020. "Hoard or Exploit? Intergenerational Allocation of Exhaustible Natural Resources," Energies, MDPI, vol. 13(24), pages 1-20, December.
    2. Tol, Richard S.J. & Yohe, Gary W., 2009. "The Stern Review: A deconstruction," Energy Policy, Elsevier, vol. 37(3), pages 1032-1040, March.
    3. Marion Davin & Karine Gente & Carine Nourry, 2013. "Should a Country Invest more in Human or Physical Capital? A Two-Sector Endogenous Growth Approach," AMSE Working Papers 1330, Aix-Marseille School of Economics, France, revised May 2013.
    4. Lopez, Humberto, 2008. "The social discount rate : estimates for nine Latin American countries," Policy Research Working Paper Series 4639, The World Bank.
    5. Onno J. Kuik & Barbara Bucher & Michela Catenacci & Etem Karakaya & Richard S.J. Tol, 2006. "Methodological aspects of recent climate change damage cost studies," Working Papers FNU-122, Research unit Sustainability and Global Change, Hamburg University, revised Dec 2006.
    6. Egerer, Jonas & Rosellón, Juan & Schill, Wolf-Peter, 2015. "Power System Transformation toward Renewables: An Evaluation of Regulatory Approaches for Network Expansion," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 36(4), pages 105-128.
    7. Heinzel, Christoph, 2008. "Implications of diverging social and private discount rates for investments in the German power industry: a new case for nuclear energy?," Dresden Discussion Paper Series in Economics 03/08, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    8. Moore, Mark A. & Boardman, Anthony E. & Vining, Aidan R., 2013. "More appropriate discounting: the rate of social time preference and the value of the social discount rate," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 4(1), pages 1-16, March.
    9. Huber, Bernd & Runkel, Marco, 2008. "Interregional redistribution and budget institutions under asymmetric information," Journal of Public Economics, Elsevier, vol. 92(12), pages 2350-2361, December.
    10. Darong Dai & Guoqiang Tian, 2023. "Optimal interregional redistribution and local budget rules with multidimensional heterogeneity," Review of Economic Design, Springer;Society for Economic Design, vol. 27(1), pages 79-124, February.
    11. Debus Martin & Michaelis Jochen, 2006. "Ausbildung, Erwerbsphase, Renteneintrittdemografischer Wandel und optimale Zeitallokation im Lebenszyklus / Education, Working Period, Retirement - Demographic Change and Optimal Time Allocation Withi," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 226(6), pages 611-628, December.
    12. Mareike Schad & Jürgen John, 2012. "Towards a social discount rate for the economic evaluation of health technologies in Germany: an exploratory analysis," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 13(2), pages 127-144, April.
    13. Cyril Bourgeois & Pierre-Alain Jayet & Florence Habets & Pascal Viennot, 2018. "Estimating the Marginal Social Value of Agriculturally Driven Nitrate Concentrations in an Aquifer: A Combined Theoretical-Applied Approach," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 4(01), pages 1-30, January.
    14. Volodymyr Lipkan & Lydmyla Vasutynska & Tetyana Syvak, 2018. "Methods Of Analysis Of The Effectiveness Of Public Sector Projects: Features And Constraints," Baltic Journal of Economic Studies, Publishing house "Baltija Publishing", vol. 4(1).
    15. David EVANS & Erhun KULA, 2009. "Social discount rates and welfare weights for public investment decisions under budgetary restrictions – the case of Cyprus," Departmental Working Papers 2009-19, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    16. Penyalver, Domingo & Turró, Mateu & Zavala-Rojas, Diana, 2018. "Intergenerational perception of the utility of major transport projects," Research in Transportation Economics, Elsevier, vol. 70(C), pages 97-111.
    17. David J. EVANS, 2006. "Social discount rates for the European Union," Departmental Working Papers 2006-20, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    18. Akbulut, Hale & Seçilmiş, Erdem, 2019. "Estimation of a social discount rate for Turkey," Socio-Economic Planning Sciences, Elsevier, vol. 67(C), pages 78-85.
    19. Jan Kubíček & Leoš Vítek, 2010. "Hodnocení veřejných projektů z hlediska společenské míry diskontace [Evaluation of Public Projects from the Viewpoint of Social Rate of Discount]," Politická ekonomie, Prague University of Economics and Business, vol. 2010(3), pages 291-304.
    20. Turró, Mateu & Penyalver, Domingo, 2019. "Hunting white elephants on the road. A practical procedure to detect harmful projects of transport infrastructure," Research in Transportation Economics, Elsevier, vol. 75(C), pages 3-20.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:esr:wpaper:wp252. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sarah Burns (email available below). General contact details of provider: https://edirc.repec.org/data/esriiie.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.