Time perspective and climate change policy

Larry S. Karp and Yacov Tsur
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Yacov Tsur: The Hebrew University of Jerusalem

No 1062, Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley

Abstract: The tendency to foreshorten time units as we peer further into the future provides an explanation for hyperbolic discounting at an intergenerational time scale. We study implications of hyperbolic discounting for climate change policy, when the probability of a climate-induced catastrophe depends on the stock of greenhouse gasses. We provide a positive analysis by characterizing the set of Markov perfect equilibria (MPE) of the intergenerational game amongst a succession of policymakers. Each policymaker reflects her generation's preferences, including its hyperbolic discounting. For a binary action game, we compare the MPE set to a "restricted commitment" benchmark. We compare the associated "constant equivalent discount rates" and the willingness to pay to control climate change with assumptions and recommendations in the Stern Review on Climate Change.". . .My picture of the world is drawn in perspective. . . I apply my perspective not merely to space but also to time" --Ramsey.

Keywords: hyperbolic discounting; Markov Perfect Equilibria; catastrophic climate change; uncertainty (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-ltv
Date: 2008-07-01
Note: oai:cdlib1:are_ucb-1258
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