Siblings, not triplets: social preferences for risk, inequality and time in discounting climate change

Giles D. Atkinson, Simon Dietz, Jennifer Helgeson, Cameron J. Hepburn () and Sælen, Håkon

No 2009-14, Economics Discussion Papers from Kiel Institute for the World Economy

Abstract: Arguments about the appropriate discount rate often start by assuming a Utilitarian social welfare function with isoelastic utility, in which the consumption discount rate is a function of the (constant) elasticity of marginal utility along with the (much discussed) utility discount rate. In this model, the elasticity of marginal utility simultaneously reflects preferences for intertemporal substitution, aversion to risk, and aversion to (spatial) inequality. While these three concepts are necessarily identical in the standard model, this need not be so: well-known models already enable risk to be separated from intertemporal substitution. Separating the three concepts might have important implications for the appropriate discount rate, and hence also for long-term policy. This paper investigates these issues in the context of climate-change economics, by surveying the attitudes of over 3000 people to risk, income inequality over space and income inequality over time. The results suggest that individuals do not see the three concepts as identical, and indeed that preferences over risk, inequality and time are only weakly correlated. As such, relying on empirical evidence of risk or inequality preferences may not necessarily be an appropriate guide to specifying the elasticity of intertemporal substitution. --

Keywords: Climate change; discounting; risk aversion; intertemporal substitution; inequality aversion; intergenerational equity (search for similar items in EconPapers)
JEL-codes: Q51 C90 D01 D63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env and nep-upt
Date: 2009
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Persistent link: http://EconPapers.repec.org/RePEc:zbw:ifwedp:7493

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