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On Hyperbolic Discounting in Energy Models: An Application to Natural Gas Allocation in Canada

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  • John Rowse

Abstract

Recent work on time discounting involves hyperbolic discounting, in which the marginal discount rate shrinks over time. This work examines hyperbolic discounting and energy resource allocation utilizing a complex dynamic optimization model of natural gas allocation for British Columbia, Canada. Four hyperbolic and three conventional (constant annual) discount rate paths are considered. Focus is placed on the consequences: of using one hyperbolic discount rate path when another hyperbolic path is appropriate, of using conventional discounting when hyperbolic discounting is appropriate, and of using hyperbolic discounting when conventional discounting is appropriate. The generality and implications of the findings are also considered.

Suggested Citation

  • John Rowse, 2008. "On Hyperbolic Discounting in Energy Models: An Application to Natural Gas Allocation in Canada," The Energy Journal, , vol. 29(1_suppl), pages 135-158, June.
    • Handle: RePEc:sae:enejou:v:29:y:2008:i:1_suppl:p:135-158
    DOI: 10.5547/ISSN0195-6574-EJ-Vol29-NoSI-8
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    References listed on IDEAS

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    1. Norman Henderson & Ian Bateman, 1995. "Empirical and public choice evidence for hyperbolic social discount rates and the implications for intergenerational discounting," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 5(4), pages 413-423, June.
    2. Demetrios Papathanasiou and Dennis Anderson, 2001. "Uncertainties in Responding to Climate Change: On the Economic Value of Technology Policies for Reducing Costs and Creating Options," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 79-114.
    3. John Rowse, 1988. "Does an Exhaustible Resource Usually Have Many Near-Optimal Depletion Paths?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 70(3), pages 646-653.
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