Intergenerationally Equitable Discounting and its Implications for Climate Policy

Hiroaki Sakamoto

Discussion papers from Graduate School of Economics Project Center, Kyoto University

Abstract: This paper investigates the properties of intergenerationally equitable dis- counting by using an axiomatically well-founded welfare function which was originally developed by Epstein (1983), and more recently extended by Bommier and Zuber (2008). In stead of seeking for the appropriate value of social rate of time preference, intergenerational equity is incorpo- rated at axiomatic level. I show that the intergenerational-equity-consistent (IE-consistent) discount rate can be higher or lower than the standard no- time-preference case without appealing to uncertainty. The relationship between IE-consistent discount rates and risk of world extinction is also examined with an emphasis on the case where the hazard rate is endoge- nously determined. With an application to climate change, I show that endogenous hazard rate can increase the discount rate, which implies rel- atively less stringent carbon abatement as the optimal climate policy.

Keywords: Intergenerational Equity; Discounting; Climate Change; Uncertainty; Endogenous Hazard Rate (search for similar items in EconPapers)
JEL-codes: D91 Q54 Q56 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2010-03
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Persistent link: https://EconPapers.repec.org/RePEc:kue:dpaper:e-09-004

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