Numerical analysis of non-constant pure rate of time preference: A model of climate policy

Tomoki Fujii and Larry Karp

Journal of Environmental Economics and Management, 2008, vol. 56, issue 1, 83-101

Abstract: When current decisions affect welfare in the far-distant future, as with climate change, the use of a declining pure rate of time preference (PRTP) provides potentially important modeling flexibility. The difficulty of analyzing models with non-constant PRTP limits their application. We describe and provide software (available online) to implement an algorithm to numerically obtain a Markov perfect equilibrium for an optimal control problem with non-constant PRTP. We apply this software to a simplified version of the numerical climate change model used in the Stern Review. For our calibration, the policy recommendations are less sensitive to the PRTP than widely believed.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:56:y:2008:i:1:p:83-101

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Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

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