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International inequity aversion and the social cost of carbon

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  • Richard S.J. Tol

    () (Economic and Social Research Institute)

Abstract

I define the rate of inequity aversion, distinguishing between the pure rate and the consumption rate. I measure the rate of aversion to inequality in consumption as expressed in the development aid given by rich countries to poor ones between 1965 and 2005. There is an ambiguous relationship between the pure rate of inequity aversion and the consumption rate, driven by the rate of risk aversion. However, for a reasonable choice of the rate of risk aversion, rich countries are shown to be inequity averse, and increasingly so over time. The social cost of carbon is very sensitive to equity weighting and assumptions about the rate of risk and inequity aversion. Estimates for the consumption rate of inequity aversion for recent data suggest that the equity-weighted social cost of carbon is less than 50% larger than the unweighted estimate.

Suggested Citation

  • Richard S.J. Tol, 2009. "International inequity aversion and the social cost of carbon," Working Papers FNU-178, Research unit Sustainability and Global Change, Hamburg University, revised Nov 2009.
  • Handle: RePEc:sgc:wpaper:178
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    References listed on IDEAS

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    6. Anthoff, David & Tol, Richard S.J., 2010. "On international equity weights and national decision making on climate change," Journal of Environmental Economics and Management, Elsevier, vol. 60(1), pages 14-20, July.
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    Cited by:

    1. Emmerling, Johannes & Groom, Ben & Wettingfeld, Tanja, 2017. "Discounting and the representative median agent," Economics Letters, Elsevier, vol. 161(C), pages 78-81.

    More about this item

    Keywords

    Inequity aversion; risk aversion; income distribution; development aid; climate change; social cost of carbon;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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