Global warming and hyperbolic discounting

Larry Karp

Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley

Abstract: The use of a constant discount rate to study long-lived environmental problems such as global warming has two disadvantages: the prescribed policy is sensitive to the discount rate, and with moderate discount rates, large future damages have almost no effect on current decisions. Time-consistent quasi-hyperbolic discounting alleviates both of these modeling problems, and is a plausible description of how people think about the future. We analyze the time-consistent Markov Perfect equilibrium in a general model with a stock pollutant. The solution to the linear-quadratic specialization illustrates the role of hyperbolic discounting in a model of global warming. (C) 2004 Elsevier B.V. All rights reserved.

Keywords: stock pollutant; hyperbolic discounting; global warming; time consistency (search for similar items in EconPapers)
Date: 2005-02-01
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Citations: View citations in EconPapers (108)

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Related works:
Journal Article: Global warming and hyperbolic discounting (2005)
Working Paper: Global Warming and Hyperbolic Discounting (2004)
Working Paper: Global Warming and Hyperbolic Discounting (2004)
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