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International inequity aversion and the social cost of carbon

Richard Tol ()

No FNU-178, Working Papers from Research unit Sustainability and Global Change, Hamburg University

Abstract: I define the rate of inequity aversion, distinguishing between the pure rate and the consumption rate. I measure the rate of aversion to inequality in consumption as expressed in the development aid given by rich countries to poor ones between 1965 and 2005. There is an ambiguous relationship between the pure rate of inequity aversion and the consumption rate, driven by the rate of risk aversion. However, for a reasonable choice of the rate of risk aversion, rich countries are shown to be inequity averse, and increasingly so over time. The social cost of carbon is very sensitive to equity weighting and assumptions about the rate of risk and inequity aversion. Estimates for the consumption rate of inequity aversion for recent data suggest that the equity-weighted social cost of carbon is less than 50% larger than the unweighted estimate.

Keywords: Inequity aversion; risk aversion; income distribution; development aid; climate change; social cost of carbon (search for similar items in EconPapers)
JEL-codes: D31 D63 Q54 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env and nep-upt
Date: 2009-11, Revised 2009-11
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