Endogenous Discounting and Climate Policy

Yacov Tsur and Amos Zemel

No 37944, Discussion Papers from Hebrew University of Jerusalem, Department of Agricultural Economics and Management

Abstract: Under risk of abrupt climate change, the occurrence hazard is added to the social discount rate. As a result, the social discount rate (i) increases and (ii) turns endogenous to the global warming policy. The second effect bears profound policy implications that are magnified by economic growth. In particular, we find that greenhouse gases (GHG) emission should be terminated at a finite time so that the ensuing occurrence risk will vanish in the long run. Due to the public bad nature of the catastrophic risk, the second effect is ignored in a competitive allocation and unregulated economic growth will give rise to excessive emissions. In fact, the GHG emission paths under the optimal and competitive growth regimes lie at the extreme ends of the range of feasible emissions. We derive the Pigouvian hazard tax that implements the optimal growth regime.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://ageconsearch.umn.edu/record/37944/files/tsur-endisc.pdf (application/pdf)

Related works:
Journal Article: Endogenous Discounting and Climate Policy (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:huaedp:37944

DOI: 10.22004/ag.econ.37944

Access Statistics for this paper

More papers in Discussion Papers from Hebrew University of Jerusalem, Department of Agricultural Economics and Management Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().