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Global warming and hyperbolic discounting

Global warming and hyperbolic discounting
Global warming and hyperbolic discounting
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.
stock pollutant, hyperbolic discounting, global warming, time consistency
261-282
Karp, Larry
c0e2efad-f4e6-4fb9-9630-aaa8cf37b72e
Karp, Larry
c0e2efad-f4e6-4fb9-9630-aaa8cf37b72e

Karp, Larry (2005) Global warming and hyperbolic discounting. Journal of Public Economics, 89 (1-2), 261-282. (doi:10.1016/j.jpubeco.2004.02.005).

Record type: Article

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.

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More information

Published date: 2005
Keywords: stock pollutant, hyperbolic discounting, global warming, time consistency

Identifiers

Local EPrints ID: 39696
URI: https://eprints.soton.ac.uk/id/eprint/39696
PURE UUID: 2975ddce-9831-42f9-a79b-35c0a6096a13

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Date deposited: 29 Jun 2006
Last modified: 17 Jul 2017 15:35

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