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Risk aversion, intergenerational equity and climate change

  • Minh Ha-Duong

    ()

    (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - Ecole Nationale du Génie Rural des Eaux et Forêts)

  • Nicolas Treich

    (LEERNA - Laboratoire d'Economie de l'Environnement et des Ressources Naturelles - Institut national de la recherche agronomique (INRA) - Université des Sciences Sociales - Toulouse I)

The paper investigates a climate-economy model with an iso-elastic welfare function in which one parameter gamma measures relative risk-aversion and a distinct parameter rho measures resistance to intertemporal substitution. We show both theoretically and numerically that climate policy responds differently to variations in the two parameters. In particular, we show that higher gamma but lower rho leads to increase emissions control. We also argue that climate-economy models based on intertemporal expected utility maximization, i.e. models where gamma = rho, may misinterpret the sensitivity of the climate policy to risk-aversion.

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Paper provided by HAL in its series Post-Print with number halshs-00000680.

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Date of creation: Jun 2004
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Publication status: Published, Environmental and Resource Economics, 2004, 28, 2, 195-207
Handle: RePEc:hal:journl:halshs-00000680
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00000680
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  1. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1995. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc.
  2. Reinhart, Carmen & Ogaki, Masao, 1995. "Measuring intertemporal substitution: The role of durable goods," MPRA Paper 13690, University Library of Munich, Germany.
  3. Michel Normandin & Pascal St-Amour, 1996. "Substitution, Risk Aversion, Taste Shocks and Equity Premia," Cahiers de recherche CREFE / CREFE Working Papers 39, CREFE, Université du Québec à Montréal.
  4. Minh Ha-Duong & Nicolas Treich, 1999. "Recursive Intergenerational Utility in Global Climate Risk Modeling," CIRANO Working Papers 99s-40, CIRANO.
  5. David M Kreps & Evan L Porteus, 1978. "Temporal Resolution of Uncertainty and Dynamic Choice Theory," Levine's Working Paper Archive 625018000000000009, David K. Levine.
  6. Minh Ha-Duong & Michael Grubb & Jean-Charles Hourcade, 1997. "Influence of socioeconomic inertia and uncertainty on optimal CO2-emission abatement," Post-Print halshs-00002452, HAL.
  7. Robert E. Hall, 1981. "Intertemporal Substitution in Consumption," NBER Working Papers 0720, National Bureau of Economic Research, Inc.
  8. Kenneth J. Arrow, 1996. "Discounting, Morality, and Gaming," Working Papers 97004, Stanford University, Department of Economics.
  9. Weitzman, Martin L., 1998. "Why the Far-Distant Future Should Be Discounted at Its Lowest Possible Rate," Journal of Environmental Economics and Management, Elsevier, vol. 36(3), pages 201-208, November.
  10. Gollier, Christian, 2002. "Discounting an uncertain future," Journal of Public Economics, Elsevier, vol. 85(2), pages 149-166, August.
  11. Barsky, Robert B, et al, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 537-79, May.
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