Risk Aversion, Intergenerational Equity and Climate Change

Minh Ha-Duong and Nicolas Treich

Environmental & Resource Economics, 2004, vol. 28, issue 2, 195-207

Abstract: The paper investigates a climate-economy model with an iso-elastic welfare function in which one parameter γ measures relative risk-aversion and a distinct parameter ρ measures resistance to intertemporal substitution.We show both theoretically and numerically that climate policy responds differently to variations in the two parameters. In particular, we show that higher γ but lower ρ leads to increase emissions control. We also argue that climate-economy models based on intertemporal expected utility maximization, i.e. models where γ=ρ, may misinterpret the sensitivity of the climate policy to risk-aversion. Copyright Kluwer Academic Publishers 2004

Keywords: climate change; discounting; equity; risk-aversion (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1023/B:EARE.0000029915.04325.25

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