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Now or Never: Environmental Protection under Hyperbolic Discounting

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  • Winkler, Ralph

Abstract

The author analyzes the optimal investment in environmental protection in a model of non-overlapping hyperbolically discounting agents. He shows that, in the long run and in the absence of a commitment device, society is stuck in a situation where all agents prefer further investments, yet no agent invests. This holds no matter whether agents are aware of the time inconsistency of their preferences. As a consequence, awareness of the time-inconsistency problem poses at best a short run remedy. Moreover, such an outcome may be Pareto inefficient and may explain the weak performance of long-run environmental policies.

Suggested Citation

  • Winkler, Ralph, 2009. "Now or Never: Environmental Protection under Hyperbolic Discounting," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-22.
    • Handle: RePEc:zbw:ifweej:7598
    DOI: 10.5018/economics-ejournal.ja.2009-12
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    Cited by:

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    2. Dongmei Guo & Shouyang Wang & Lin Zhao, 2020. "More Stringent Cap or Higher Penalty Fee? Dealing with Procrastination in Environmental Protection," Annals of Economics and Finance, Society for AEF, vol. 21(1), pages 41-69, May.
    3. Yohe, Gary W. & Tol, Richard S. J. & Anthoff, David, 2009. "Discounting for Climate Change," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-22.
    4. Funk, Matt, 2008. "On the Problem of Vague Terms: A Glossary of Clearly Stated Assumptions & Careful, Patient, Descriptions," MPRA Paper 14505, University Library of Munich, Germany.

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    More about this item

    Keywords

    Environmental policy; environmental protection; hyperbolic discounting; Markov perfect equilibria; time-inconsistency;
    All these keywords.

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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