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Time perspective, discounting and climate change policy

Author

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  • Karp, Larry
  • Tsur, Yacov

Abstract

Time perspective – the tendency to foreshorten time units as we peer further into the future – implies hyperbolic discounting. We study implications of hyperbolic discounting for climate change policy, using a model in which the probability of a climate-induced catastrophe depends on the stock of greenhouse gasses (GHG). We characterize the set of Markov perfect equilibria of the intergenerational game in which each generation can either do nothing or stabilize atmospheric GHG concentration, and compare this set to a “restricted commitment” benchmark. We calculate the associated “constant equivalent discount rates” and the corresponding levels of expenditure to control climate change, and compare these results to discounting assumptions and policy recommendations in the Stern Review on Climate Change.

Suggested Citation

  • Karp, Larry & Tsur, Yacov, 2007. "Time perspective, discounting and climate change policy," Discussion Papers 290003, Hebrew University of Jerusalem, Department of Agricultural Economics and Management.
    • Handle: RePEc:ags:huaedp:290003
    DOI: 10.22004/ag.econ.290003
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    File URL: https://ageconsearch.umn.edu/record/290003/files/yacov-karp.pdf
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    Cited by:

    1. Yacov Tsur & Amos Zemel, 2009. "Endogenous Discounting and Climate Policy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 44(4), pages 507-520, December.
    2. Karp, Larry S. & Zhao, Jinhua, 2008. "A Proposal for the Design of the Successor to the Kyoto Protocol," CUDARE Working Papers 42878, University of California, Berkeley, Department of Agricultural and Resource Economics.

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