Time perspective and climate change policy |
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Authors: | Larry Karp Yacov Tsur |
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Institution: | a Department of Agricultural and Resource Economics, 207 Giannini Hall, University of California, Berkeley, CA 94720, United States b Department of Agricultural Economics and Management, The Hebrew University of Jerusalem, P.O. Box 12, Rehovot 76100, Israel |
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Abstract: | The tendency to foreshorten time units as we peer further into the future provides an explanation for hyperbolic discounting at an inter-generational time scale. We study implications of hyperbolic discounting for climate change policy, when the probability of a climate-induced catastrophe depends on the stock of greenhouse gasses. We characterize the set of Markov perfect equilibria (MPE) of the inter-generational game amongst a succession of policymakers. Each policymaker reflects her generation's preferences, including its hyperbolic discounting. For a binary action game, we compare the MPE set to a “restricted commitment” benchmark. We compare the associated “constant-equivalent discount rates” and the willingness to pay to control climate change with assumptions and recommendations in the Stern Review on Climate Change.“…My picture of the world is drawn in perspective…. I apply my perspective not merely to space but also to time”—Ramsey. |
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Keywords: | Hyperbolic discounting Markov perfect equilibria Catastrophic climate change Uncertainty |
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