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Willingness To Pay Of An Expo-Power Utility Decision Maker To Limit Climate Change

Author

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  • Jules Sadefo-Kamdem

    (MRE - Montpellier Recherche en Economie - UM - Université de Montpellier, UG - Université de Guyane)

  • David Akame

    (MRE - Montpellier Recherche en Economie - UM - Université de Montpellier)

Abstract

This paper extends the work of Pindyck by taking into consideration a large class family of different utility functions of economic agents. As in Pindyck, instead of consideringa social utility function that is characterized by constant relative risk aversion (C.R.R.A), we use the expo-power utility function of Saha. In fact, depending on the choice of the expo-power utility function parameters, we cover a diverse range1of utility functions and besides covering the other utility functions that a C.R.R.A omits, Expo-power function permits usto discern if under the other behaviors of economic agents, the willingness to pay remainsmore affected by uncertain outcomes than certain outcomes, when we vary the expectationand standard deviation of the temperature distribution probability. Our paper has maintained the small-tailed gamma distributions of temperature and economic impact of Pindyck, notonly because they hinder infinite future welfare losses (for an exponential utility function), but because it is easy to change some moments of the distribution (jointly or holding the othersfixed) while studying how uncertainty influences the willingness to pay as explained in Pindyck.

Suggested Citation

  • Jules Sadefo-Kamdem & David Akame, 2020. "Willingness To Pay Of An Expo-Power Utility Decision Maker To Limit Climate Change," Working Papers hal-02465195, HAL.
    • Handle: RePEc:hal:wpaper:hal-02465195
    Note: View the original document on HAL open archive server: https://hal.umontpellier.fr/hal-02465195
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    References listed on IDEAS

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    1. Martin L. Weitzman, 2011. "Additive Damages, Fat-Tailed Climate Dynamics, and Uncertain Discounting," NBER Chapters, in: The Economics of Climate Change: Adaptations Past and Present, pages 23-46, National Bureau of Economic Research, Inc.
    2. Robert S. Pindyck, 2011. "Modeling the Impact of Warming in Climate Change Economics," NBER Chapters, in: The Economics of Climate Change: Adaptations Past and Present, pages 47-71, National Bureau of Economic Research, Inc.
    3. Newell, Richard G. & Pizer, William A., 2003. "Regulating stock externalities under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 416-432, March.
    4. Simon Dietz & Nicholas Stern, 2008. "Why Economic Analysis Supports Strong Action on Climate Change: A Response to the Stern Review's Critics," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 2(1), pages 94-113, Winter.
    5. Robert S. Pindyck, 2011. "Fat Tails, Thin Tails, and Climate Change Policy," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(2), pages 258-274, Summer.
    6. Nicholas Stern, 2008. "The Economics of Climate Change," American Economic Review, American Economic Association, vol. 98(2), pages 1-37, May.
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    More about this item

    Keywords

    Willingness to Pay; Climate Change; Expo-Power Utility; I.A.R.A; D.A.R.A; I.R.R.A; IA;
    All these keywords.

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