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Climate policy under sustainable discounted utilitarianism

  • Simon Dietz
  • Geir B. Asheim

Empirical evaluation of policies to mitigate climate chagne has been largely confined to the application of discounted utilitarianism (DU). DU is controversial, both due to the conditions through which it is justified and due to its consequences for climate policies, where the discounting of future utility gains from present abatement efforts makes it harder for such measures to justify their present costs. In this paer, we propose sustainable discounted utilitarianism (SDU) as an alternative principle for evaluation of climate policy. Unlike undiscounted utilitarianism, which always assigns zero relative weight to present utility, SUD is an axiomatically based criterion, which departs from DU by assigning zer weight to present utility if and only if the present is better off than the future. Using the DICE integrated assessment model to run risk analysis, we show that it is possible for the future to be worse off than the present along a "business as usual" development path. Consequently SDU adn DU differ, and willingness to pay for emissions reductions is (sometimes significantly) higher under SDU than under DU. Under SDU, stringent schedules of emissions reductions increase social welfare, even for a relatively high utility discount rate.

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Paper provided by Grantham Research Institute on Climate Change and the Environment in its series GRI Working Papers with number 42.

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Date of creation: Mar 2011
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Handle: RePEc:lsg:lsgwps:wp42
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  1. Chichilnisky, Graciela, 1995. "An axiomatic approach to sustainable development," MPRA Paper 8609, University Library of Munich, Germany.
  2. Fankhauser, Samuel & S.J. Tol, Richard, 2005. "On climate change and economic growth," Resource and Energy Economics, Elsevier, vol. 27(1), pages 1-17, January.
  3. ZUBER, Stéphane, 2010. "Justifying social discounting: the rank-discounted utilitarian approach," CORE Discussion Papers 2010036, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Geir Asheim & Tapan Mitra & Bertil Tungodden, 2012. "Sustainable recursive social welfare functions," Economic Theory, Springer, vol. 49(2), pages 267-292, February.
  5. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
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  7. Asheim, Geir B. & Mitra, Tapan, 2010. "Sustainability and discounted utilitarianism in models of economic growth," Mathematical Social Sciences, Elsevier, vol. 59(2), pages 148-169, March.
  8. Geir B. Asheim, 2010. "Intergenerational Equity," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 197-222, 09.
  9. Dasgupta, Partha, 2001. "Human Well-Being and the Natural Environment," OUP Catalogue, Oxford University Press, number 9780199247882.
  10. Martin L. Weitzman, 2010. "What Is The "Damages Function" For Global Warming — And What Difference Might It Make?," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 1(01), pages 57-69.
  11. Ackerman, Frank & Stanton, Elizabeth A. & Bueno, Ramón, 2010. "Fat tails, exponents, extreme uncertainty: Simulating catastrophe in DICE," Ecological Economics, Elsevier, vol. 69(8), pages 1657-1665, June.
  12. David Anthoff & Richard Tol, 2009. "The Impact of Climate Change on the Balanced Growth Equivalent: An Application of FUND," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 43(3), pages 351-367, July.
  13. M. L. Weitzman, 1974. "On the Welfare Significance of National Product in Dynamic Economy," Working papers 125, Massachusetts Institute of Technology (MIT), Department of Economics.
  14. Kelly, David L. & Kolstad, Charles D., 1999. "Malthus and Climate Change: Betting on a Stable Population," University of California at Santa Barbara, Economics Working Paper Series qt9ks625sk, Department of Economics, UC Santa Barbara.
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  16. Blackorby, Charles & Bossert, Walter & Donaldson, David, 1995. "Intertemporal Population Ethics: Critical-Level Utilitarian Principles," Econometrica, Econometric Society, vol. 63(6), pages 1303-20, November.
  17. Nordhaus, William D, 1991. "To Slow or Not to Slow: The Economics of the Greenhouse Effect," Economic Journal, Royal Economic Society, vol. 101(407), pages 920-37, July.
  18. Mirrlees, J. A. & Stern, N. H., 1972. "Fairly good plans," Journal of Economic Theory, Elsevier, vol. 4(2), pages 268-288, April.
  19. Antoine Bommier & Stéphane Zuber, 2008. "Can preferences for catastrophe avoidance reconcile social discounting with intergenerational equity?," Social Choice and Welfare, Springer, vol. 31(3), pages 415-434, October.
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  21. Hammond, Peter J, 1989. "Consistent Plans, Consequentialism, and Expected Utility," Econometrica, Econometric Society, vol. 57(6), pages 1445-49, November.
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