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Risk aversion, intergenerational equity and climate change

Author

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  • Minh Ha-Duong

    (CIRED - centre international de recherche sur l'environnement et le développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

  • Nicolas Treich

    (LEERNA - Laboratoire d'Economie de l'Environnement et des Ressources Naturelles - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INRA - Institut National de la Recherche Agronomique)

Abstract

The paper investigates a climate-economy model with an iso-elastic welfare function in which one parameter gamma measures relative risk-aversion and a distinct parameter rho measures resistance to intertemporal substitution. We show both theoretically and numerically that climate policy responds differently to variations in the two parameters. In particular, we show that higher gamma but lower rho leads to increase emissions control. We also argue that climate-economy models based on intertemporal expected utility maximization, i.e. models where gamma = rho, may misinterpret the sensitivity of the climate policy to risk-aversion.

Suggested Citation

  • Minh Ha-Duong & Nicolas Treich, 2004. "Risk aversion, intergenerational equity and climate change," Post-Print halshs-00000680, HAL.
    • Handle: RePEc:hal:journl:halshs-00000680
    DOI: 10.1023/B:EARE.0000029915.04325.25
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00000680v2
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    References listed on IDEAS

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    Keywords

    risk aversion; equity; discounting; climate change; aversion au risque; équité intertemporelle; actualisation; changement climatique;
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