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Resolving intertemporal conflicts: Economics vs. Politics

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  • Antony Millner
  • Geoffrey Heal

Abstract

Intertemporal conflicts occur when a group of agents with heterogeneous time preferences must make a collective decision about how to manage a common asset. How should this be done? We examine two methods � an `Economics� approach that seeks to implement efficient allocations, and a `Politics� approach in which agents vote over consumption plans. We compare these methods by varying two characteristics of the problem: are agents� preferences known or are they hidden information, and can they commit to intertemporal collective plans or not? We show that if commitment is possible the Economics approach always Pareto dominates the Politics approach, in both full and hidden information scenarios. By contrast, without commitment the group may be better off if the Politics approach is adopted. We investigate when Politics trumps Economics analytically, and then apply our model to a survey of economists� views on the appropriate pure rate of time preference for project appraisal. For a wide range of model parameters, and under both full and hidden information, the Politics approach is supported by a majority of agents, and leads to higher group welfare.

Suggested Citation

  • Antony Millner & Geoffrey Heal, 2014. "Resolving intertemporal conflicts: Economics vs. Politics," GRI Working Papers 173, Grantham Research Institute on Climate Change and the Environment.
  • Handle: RePEc:lsg:lsgwps:wp173
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    References listed on IDEAS

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    1. Abi Adams & Laurens Cherchye & Bram De Rock & Ewout Verriest, 2014. "Consume Now or Later? Time Inconsistency, Collective Choice, and Revealed Preference," American Economic Review, American Economic Association, vol. 104(12), pages 4147-4183, December.
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    5. Yvan Lengwiler, 2005. "Heterogeneous Patience and the Term Structure of Real Interest Rates," American Economic Review, American Economic Association, vol. 95(3), pages 890-896, June.
    6. Graciela Chichilnisky, 1996. "An axiomatic approach to sustainable development," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 13(2), pages 231-257, April.
    7. Dasgupta, Partha, 2001. "Human Well-Being and the Natural Environment," OUP Catalogue, Oxford University Press, number 9780199247882.
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    9. Christian Gollier & Richard Zeckhauser, 2005. "Aggregation of Heterogeneous Time Preferences," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 878-896, August.
    10. Moritz Drupp & Mark Freeman & Ben Groom & Frikk Nesje, 2015. "Discounting disentangled: an expert survey on the determinants of the long-term social discount rate," GRI Working Papers 196a, Grantham Research Institute on Climate Change and the Environment.
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    Cited by:

    1. Laurent Denant-Boemont & Enrico Diecidue & Olivier l’Haridon, 2017. "Patience and time consistency in collective decisions," Experimental Economics, Springer;Economic Science Association, vol. 20(1), pages 181-208, March.
    2. Borissov, Kirill & Pakhnin, Mikhail & Puppe, Clemens, 2017. "On discounting and voting in a simple growth model," European Economic Review, Elsevier, vol. 94(C), pages 185-204.
    3. repec:aea:jeclit:v:55:y:2017:i:3:p:1046-63 is not listed on IDEAS

    More about this item

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation

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