discounting and divergence of opinion the objective of this paper is to adopt a general equilibrium model and determine the socially efficient discount factor risk free rate and discount rate when there are heterogeneous anticipations about the growth of the economy as well as heterogeneous time preference rates among others we tackle the following questions is the socially efficient discount factor an arithmetic average of the individual subjectively anticipated discount factors more generally can the arrow debreu prices the risk free rates the subjectively expected socially efficient discount factors and discount rates be obtained as an average of the individual subjectively anticipated ones can beliefs dispersion be analyzed as a sort of additional risk or uncertainty leading to possibly lower discount rates is it socially efficient when diversity of opinion is taken into account to reduce the discount rate per year for more distant horizons if so what is the trajectory of the decline

uncertainty and endogenous technical change in climate policy models until recently endogenous technical change and uncertainty have been modeled separately in climate policy models in this paper we review the emerging literature that considers both these elements together taken as a whole the literature indicates that explicitly including uncertainty has important quantitative and qualitative impacts on optimal climate change technology policy

fat tails exponents extreme uncertainty simulating catastrophe in dice abstract the problem of low probability catastrophic risk is increasingly central to discussion of climate science and policy but the integrated assessment models iams of climate economics rarely incorporate this possibility what modifications are needed to analyze catastrophic economic risks in an iam we explore this question using dice a well known iam we examine the implications of a fat tailed probability distribution for the climate sensitivity parameter a focus of recent work by martin weitzman and the shape of the damage function one of the issues raised by the stern review forecasts of disastrous economic outcomes in dice can result from the interaction of these two innovations but not from either one alone

climate change policy under polar amplification abstract polar amplification is an established scientific fact which has been associated with the surface albedo feedback and with heat and moisture transport from the equator to the poles in this paper we unify a two box climate model which allows for heat and moisture transport from the southern region to the northern region with an economic model of welfare optimization our main contribution is to show that by ignoring spatial heat and moisture transport and the resulting polar amplification the regulator may overestimate or underestimate the tax on greenhouse gas emissions the direction of bias depends on the relations between marginal damages from temperature increase in each region we also determine the welfare cost when a regulator mistakenly ignores polar amplification numerical simulations confirm our theoretical results while ballpark estimates indicate that the tax bias could be as high as 20 while welfare cost could reach 2 of global effective steady state consumption

rationalizing hyperbolic discounting abstract we show that if agents are uncertain about their discount rates it may be rational for them to discount the distant future hyperbolically rather than exponentially our findings thus may rationalize a common observation in experimental work which indicates that people discount the future at hyperbolic rates we show that under some assumptions uncertainty over hazard rates may lead to non constant discounting but not imply dynamically inconsistent behavior under other assumptions uncertainty over discount rates can lead to dynamically inconsistent behavior like violating planned consumption profiles by bringing consumption forward

increasing downside or outer risk the challenge of measuring competitive imbalance in closed and open leagues in two seminal articles menezes geiss and tressler 1980 and menezes and wang 2005 have defined the concepts of increases in downside and in outer risk such notions are useful to give intrinsic characterizations of the notions of prudence and temperance in this article we explore a new application about higher order risk preferences the measurement of competitive imbalance in sports leagues we show that desirable properties for the measurement of imbalance are the inclination to any increase in downside risk in the context of closed leagues and the aversion to any increase in outer risk in the context of open leagues

the evolution of time preference with aggregate uncertainty we examine the evolutionary foundations of intertemporal preferences when all the risk affecting survival and reproduction is idiosyncratic evolution selects for agents who maximize the discounted sum of expected utility discounting at the sum of the population growth rate and the mortality rate aggregate uncertainty concerning survival rates leads to discount rates that exceed the sum of population growth rate and death rate and can push agents away from exponential discounting

asymmetric effects of the business cycle on carbon dioxide emissions abstract long term carbon dioxide emissions forecasts rely on the assumption that the economic growth rate is constant over long time horizons and exclude the business cycle thereby ignoring a fundamental component of the macroeconomy this paper considers how the business cycle affects emissions forecasts and shows the implicit assumption in current forecasts that the elasticity of emissions is constant with respect to gdp is wrong in the united states emissions fall more sharply when gdp declines than they rise when gdp increases this is partly due to a decrease in industrial energy intensity as gdp declines a simulation shows that accounting for the business cycle results in 5 lower cumulative emissions through 2050 relative to the baseline forecast

risk aversion intergenerational equity and climate change the paper investigates a climate economy model with an iso elastic welfare function in which one parameter measures relative risk aversion and a distinct parameter 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 but lower leads to increase emissions control we also argue that climate economy models based on intertemporal expected utility maximization i e models where may misinterpret the sensitivity of the climate policy to risk aversion

distributional preferences and the incidence of costs and benefits in climate change policy we explore the relationship between willingness to pay wtp for climate change mitigation and distributional preferences by which we mean individuals opinions about who should be responsible for climate change prevention and whether the share of climate change impacts borne by the poor is a cause for concern we use 1 770 responses to an online stated preference survey the domestic costs in our survey s policy choice scenarios are expressed as a set of randomized shares across four different payment vehicles and the international cost shares are randomized across four groups of countries we also elicit respondents perceptions of the likely regressivity of climate change impacts under a policy of business as usual wtp is higher when larger cost shares are borne by parties deemed to bear a greater responsibility for mitigation and when respondents believe and care that the impacts of climate change may be borne disproportionately by the world s poor that wtp for an environmental policy depends on the distributional consequences of the policy is an unsettling result efficiency assessments are typically assumed to be separate from equity considerations in most benefit cost analyses

demand for sport this article reviews international literature on the demand for professional sport the first part presents a conceptual framework for understanding the sources and determinants of the demand for professional sporting contests the second part reviews empirical evidence on key determinants of attendance at sporting events and on other sources of demand such as broadcasting sponsorship and merchandising the review concludes that there is still much to be learned about demand for professional sport and that there are no simple lessons to be drawn from existing literature but important messages do emerge from studies of demand for attendance with regard to effects of uncertainty of outcome quality of contest and quality of viewing copyright 2003 oxford university press

financial fair play in european football in 2010 uefa the governing body of european football announced a set of financial restraints which clubs must observe when seeking to enter its competitions notably the uefa champions league we analyse the financial and sporting impact of these financial fair play ffp regulations in four major european football leagues we first discuss the details of ffp and frame these regulations in the institutional set up of the european football industry we then show how the break even constraint embedded in ffp could substantially reduce average payrolls and wage to turnover ratios while strengthening the position of the traditional top teams since the benefits of the break even rule to consumers remain unclear we argue that these rent shifting regulations might fall foul of european competition law thomas peeters and stefan szymanski

multiple equilibria in a stochastic implementation of dice with abrupt climate change abstract integrated assessment modeling of global climate change has focused primarily on gradually occurring changes in the climate system however atmospheric and earth scientists have become increasingly concerned that the climate system may be subject to abrupt discontinuous changes on short time scales and that anthropogenic greenhouse gas emissions could trigger such shifts incorporating this type of climate dynamics into economic or integrated assessment models can result in model non convexity and multiple equilibria and thus complicate policy analysis relative to models with unique globally optimal policies using a version of the nordhaus dice model amended in previous research by keller et al 2004 keller klaus benjamin m bolker david f bradford 2004 uncertain climate thresholds and optimal economic growth journal of environmental economics and management 48 1 723 741 in conjunction with a stochastic global optimization algorithm we generate level sets of solutions which helps identify multiple equilibria resulting from the potential abrupt cessation of the north atlantic thermohaline circulation we discuss the implications of this model geometry for formulating greenhouse gas abatement policy under uncertainty and suggest that this general approach may be useful for addressing a wide range of model non convexities including those related to endogenous technological change

declining discount rates economic justifications and implications for long run policy should economic policy target immediate problems like malaria and aids or should it target climate change which may have even more dramatic life threatening effects in the very long term we discuss how the pattern of discount rates over the planning horizon bears on this important issue a declining pattern of discount rates is theoretically justified by uncertainty about future economic conditions and its shape and relevance can be estimated from historical data we analyse empirically long term interest rate data from nine countries construct a weighted average representing a possible global discount rate pattern for a very long range of future dates and assess its implications for the valuation of carbon mitigation policies christian gollier phoebe koundouri and theologos pantelidis

economic growth effects of alternative climate change impact channels in economic modeling despite increasing empirical evidence of strong links between climate and economic growth there is no established model to describe the dynamics of how different types of climate shocks affect growth patterns here we present the first comprehensive comparative analysis of the long term dynamics of one time temporary climate shocks on production factors and factor productivity respectively in a ramsey type growth model damages acting directly on production factors allow us to study dynamic effects on factor allocation savings and economic growth we find that the persistence of impacts on economic activity is smallest for climate shocks directly impacting output and successively increases for direct damages on capital loss of labor and productivity shocks related to different responses in savings rates and factor specific growth recurring shocks lead to large welfare effects and long term growth effects directly linked to the persistence of individual shocks endogenous savings and shock anticipation both have adaptive effects but do not eliminate differences between impact channels or significantly lower the dissipation time accounting for endogenous growth mechanisms increases the effects we also find strong effects on income shares important for distributional implications this work fosters conceptual understanding of impact dynamics in growth models opening options for links to empirics

political economy constraints on carbon pricing policies what are the implications for economic efficiency environmental efficacy and climate policy design abstract economists traditionally view a pigouvian fee on carbon dioxide and other greenhouse gas emissions either via carbon taxes or emissions caps and permit trading cap and trade as the economically optimal or first best policy to address climate change related externalities yet several political economy factors can severely constrain the implementation of these carbon pricing policies including opposition of industrial sectors with a concentration of assets that would lose considerable value under such policies the collective action nature of climate mitigation efforts principal agent failures and a low willingness to pay for climate mitigation by citizens real world implementations of carbon pricing policies can thus fall short of the economically optimal outcomes envisioned in theory consistent with the general theory of the second best the presence of binding political economy constraints opens a significant opportunity space for the design of creative climate policy instruments with superior political feasibility economic efficiency and environmental efficacy relative to the constrained implementation of carbon pricing policies this paper presents theoretical political economy frameworks relevant to climate policy design and provides corroborating evidence from the united states context it concludes with a series of implications for climate policy making and argues for the creative pursuit of a mix of second best policy instruments

regulation with anticipated learning about environmental damages a regulator anticipates learning about the relation between environmental stocks and economic damages for a model with linear quadratic abatement costs and environmental damages and a general learning process we show analytically that anticipated learning decreases the optimal level of abatement at a given information set if learning causes the regulator to eventually decide that damages are higher than previously thought learning eventually increases abatement learning also favors the use of taxes rather than quotas using a model that is calibrated to describe the problem of global warming we show numerically that anticipated learning causes a significant reduction in first period abatement and a small increase in the preference for taxes rather than quotas even if the regulator s initial priors about environmental damages are much too optimistic he is able to learn quickly enough to keep the expected stock trajectory near the optimal trajectory

some political aspects of unemployment abstract we study a number of mechanisms through which the economy can be stuck at a high unemployment equilibrium because a poor labour market is associated with support for a poor policy these mechanisms are consistent with the relative scarcity of measures that have been undertaken to cure unemployment the message of the paper is that curing the european unemployment problem is a difficult task because a lot of skill is required to avoid political pitfalls

decision making under uncertainty and inertia constraints sectoral implications of the when flexibility current debates on climate mitigation emphasize the role of the inertia of the economic system our aim in this paper is to study more in depth how sectorally differentiated inertia impacts on optimal c02 emission abatement policies using the starts model we show that optimal abatement levels and costs differ sensibly among sectors differential inertia is the critical determinant of this trade off especially in case of a 20 year delay in the action or in an underestimation of the growth of the transportation sector in particular the burden of any additional abatement effort falls on the most flexible sector i e the industry debates on mitigation emphasize the role of inertia of the economic system this paper aims at studying more in depth how sectorally differentiated inertia should influence optimal co2 emission abatement policies using a two sector version of starts we show that under perfect expectations optimal abatement profiles and associated costs differ sensibly between a flexible and a rigid sector transportation in a second step we scrutinize the role of the uncertainty by testing the case of a 20 year delay of action and an underestimated growth of the transportation sector we do this for three concentration ceilings and we point out the magnitude of the burden which falls on the flexible sector we derive some policy implications for the ranking of public policies and for incentive instruments to be set up at international level

climate policy and the social cost of power generation impacts of the swedish national emissions target the purpose of this paper is to discuss how the design of climate policy in a small open economy may affect the internalization of carbon related external costs and ultimately the social choice between different power generation technologies empirically we focus on the swedish case and analyze three climate policy regimes out of which two represent different national goal formulations and thus compliance strategies the results show that the social choice between power generation technologies in sweden will be significantly influenced by the choice of climate policy regime most notably if sweden would abandon its present national target for carbon dioxide emissions and instead make full use of the country s participation in international emissions trading natural gas fired power would replace onshore wind power as the power generation source with the lowest social cost

political equilibrium income distribution and growth this paper analyzes the impact of income distribution on growth when investment in human capital is the source of growth and individuals vote over the degree of redistribution in the economy the model has three main features first very different patterns of income distribution are conducive to high growth at different levels of per capita income second growth is associated with an externality whereby investment in human capital by one group increases the productivity of other groups thus potentially enabling them to invest in human capital third the initial pattern of income distribution and the resulting political equilibrium are crucial in determining whether the transmission of this externality is promoted in which case growth is enhanced or prevented in which case growth is stopped using a non overlapping generations model with voting i derive several empirical implications in particular the model implies an inverted u relation between levels of inequality and levels of income in cross sections but not necessarily in time series a result that seems consistent with a number of empirical studies

the agnostic s response to climate deniers price carbon with the election of president trump climate deniers feel emboldened and moved from the fringes to the centre of global policy making we study how an agnostic approach to policy based on pascal s wager and allowing for subjective prior probability beliefs about whether climate deniers are right prices carbon using the dice integrated assessment model we find that assigning a 10 chance of climate deniers being correct lowers the global price on carbon in 2020 only marginally from 21 to 19 per ton of carbon dioxide if policymakers apply nordhaus discounting and from 91 to 84 per ton of carbon dioxide if they apply stern discounting agnostics reflection of remaining scientific uncertainty leaves climate policy essentially unchanged the robustness of an ambitious climate policy also follows from using the max min or the min max regret principle letting the coefficient of relative ambiguity aversion vary from zero corresponding to expected utility analysis to infinity corresponding to the max min principle we show how policy makers deal with fundamental climate model uncertainty if they are prepared to assign prior probabilities to different views of the world being correct allowing for an ethical discount rate and a higher market discount rate and for a wide range of sensitivity exercises including damage uncertainty we show that pricing carbon is the robust response under rising climate scepticism

profit maximizing gate revenue sharing in sports leagues i introduction the professional team sports industry is one of the scarce industries in which coordination between competing firms clubs is widely accepted clubs in almost all sports have organized themselves in legal cartels leagues it seems obvious that a certain degree of coordination is needed to produce a team sports competition for example for scheduling games however leagues have introduced regulations which clearly go beyond the purely practical issues involved in producing games the most relevant examples include gate revenue sharing the home team gives a part of its match day income to the visiting team collective sales of media rights the league monopolizes media rights and distributes the revenues and salary caps the league limits the amount teams may spend on player wages these regulations would probably be classified as restrictive practices in any other industry yet the fact that sports leagues openly communicate their application provides an opportunity to examine how these cartels have used their devices to coordinate behavior and increase joint profits table 1 gives an overview of gate revenue sharing arrangements in sports leagues around the world almost all american major leagues engage in gate revenue sharing the national football league nfl major league baseball mlb and major league soccer mls share revenues through a central pool each club contributes a fixed percentage of its gate revenues to this pool which is distributed equally among all clubs the national hockey league nhl has a more complicated arrangement where only teams that have revenues below the median and small media markets are eligible to receive support from revenue sharing introducing local revenue sharing was also reported to be one of the issues on the table during the recent lockout in the national basketball association nba 1 to the best of my knowledge however the details of the new nba revenue sharing rule have not been made public yet in contrast european soccer clubs along with the australian football league afl share almost no gate revenues both the bundesliga and the english premier league epl have arrangements to share revenues from cup games yet these constitute a minor portion of the teams schedules interestingly both the epl and the afl had sizeable sharing arrangements in the past but contrary to the u s leagues chose to abolish these these observations raise the question why some league cartels share gate revenues while others have chosen not to i examine this question using a theoretical model of a sports league with profit maximizing teams a crucial innovation in my model is that teams serve two types of consumers in each team s local market fans are committed and prefer to see their team win in the nationwide market consumers are neutral tv viewers who like to watch a tense and high level competition a team s local or stadium revenue increases in its on field performance whereas media revenue depends on the competitive balance and overall quality of play for the league as a whole my results first show that local or gate revenue sharing decreases talent investments 2 initially lower talent investments boost club profits because total costs go down too little investment however reduces revenues which harms profits at high levels of sharing to find a profit maximizing sharing rule the league has to balance these two effects the dampening effect of sharing on investments is weaker in leagues whose teams have homogeneous local markets consequently homogeneous leagues maximize profits by setting a more extensive gate revenue sharing rule than leagues with less equal teams this may explain the observation from table 1 that the more unequal european soccer leagues share less local revenues than the more homogeneous u s major leagues 3 a somewhat striking implication of this result is also that gate revenue sharing is more interesting for clubs who have more equal revenue potentials

on modeling and interpreting the economics of catastrophic climate change with climate change as prototype example this paper analyzes the implications of structural uncertainty for the economics of low probability high impact catastrophes even when updated by bayesian learning uncertain structural parameters induce a critical tail fattening of posterior predictive distributions such fattened tails have strong im plications for situations like climate change where a catastrophe is theoretically possible because prior knowledge cannot place sufficiently narrow bounds on overall damages this paper shows that the economic consequences of fat tailed structural uncertainty along with unsureness about high temperature damages can readily outweigh the effects of discounting in climate change policy analysis

reform support in times of crisis the role of family ties we argue that an important determinant of voters support for economic reform is the strength of family ties while the crisis hypothesis predicts that crises facilitate reform we show in a political economy model that this relation can break down and even reverse when agents take into account the effect of reform on their family members applied to southern european countries with strong family ties the model rationalizes why the extremely high youth unemployment following the great recession has not led to more substantial labor market reforms in such countries austerity might block rather than foster additional structural reforms

why the far distant future should be discounted at its lowest possible rate abstract a critical feature of the distant future is currently unresolvable uncertainty about what will then be the appropriate rate of return on capital to use for discounting this paper shows that there is a well defined sense in which the lowest possible interest rate should be used for discounting the far distant future part of any investment project some implications are discussed for evaluating long term environmental projects or activities like measures to mitigate the possible effects of global climate change

the structure of economic modeling of the potential impacts of climate change grafting gross underestimation of risk onto already narrow science models scientists describe the scale of the risks from unmanaged climate change as potentially immense however the scientific models because they omit key factors that are hard to capture precisely appear to substantially underestimate these risks many economic models add further gross underassessment of risk because the assumptions built into the economic modeling on growth damages and risks come close to assuming directly that the impacts and costs will be modest and close to excluding the possibility of catastrophic outcomes a new generation of models is needed in all three of climate science impact and economics with a still stronger focus on lives and livelihoods including the risks of large scale migration and conflicts

the stern review a deconstruction using a simple model designed for transparency but nonetheless calibrated to support the much quoted damage estimates of the stern review of the economics of climate change we demonstrate significant sensitivity of those results to assumptions about the pure rate of time preference the time horizon and the rates of risk and equity aversion used to compute certainty and equity equivalent annuities most importantly we demonstrate enormous sensitivity to presumed constant regional vulnerability and underlying assumptions about adaptive capacity manipulation of any of these parameters one at a time across reasonable ranges can diminish damage estimates by as much as 84 or in the case of extending the time horizon with the review s low discount rate increase damage estimates by 900 we also confirm the usual result that limiting atmospheric concentrations to specific benchmarks above 400 ppm cannot eliminate all damages nonetheless we applaud the stern review author team for reconfirming that the climate problem can be approached productively as an economic problem whose solutions can be explored with the tools of decision analysis 2008 elsevier ltd all rights reserved

learning and climate feedbacks optimal climate insurance and fat tails we study the effect of potentially severe climate change on optimal climate change policy accounting for learning and uncertainty in the climate system in particular we test how fat upper tailed uncertainty over the temperature change from a doubling of greenhouse gases the climate sensitivity affects economic growth and emissions policy in addition we examine whether and how fast uncertainties could be diminished through bayesian learning our results indicate that while overall learning is slow the mass of the fat tail diminishes quickly since observations near the mean provide evidence against fat tails we denote as partial learning the case where the planner rejects high values of the climate sensitivity with high confidence even though significant uncertainty remains fat tailed uncertainty without learning reduces current emissions by 38 relative to certainty indicating significant climate insurance or paying to limit emissions today to reduce the risk of very high temperature changes is optimal however learning reduces climate insurance by about 50 the optimal abatement policy is strongly influenced by the current state of knowledge even though greenhouse gas ghg emissions are difficult to reverse non fat tailed uncertainty is largely irrelevant for optimal emissions policy

income inequality competitive balance and the attractiveness of team sports some evidence and a natural experiment from english soccer this chapter examines the relationship between financial inequality competitive balance and attendance at english professional league soccer it shows that while financial inequality among the clubs has increased competitive balance has remained relatively stable and match attendance appears unrelated to competitive balance a clearer test of the relationship is suggested by comparison with fa cup matches because income inequality is primarily driven by inter rather than intradivisional inequality the fa cup has been a much more unbalanced competition than the divisional championships attendance at fa cup matches relative to the corresponding league matches has fallen over the last 20 years

the economic design of sporting contests what is the optimal number of entrants in a race or the optimal number of teams in a baseball league what is the optimal structure of prizes for a golf tournament or degree of revenue sharing for a football championship how evenly balanced should the competing teams be in the nascar or formula one championships what is the maximum number of entrants per nation to the olympic games that should be permitted what quota of qualifying teams to the soccer world cup should be allocated to the developing nations

pricing uncertainty induced by climate change geophysicists examine and document the repercussions for the earth s climate induced by alternative emission scenarios and model specifications using simplified approximations they produce tractable characterizations of the associated uncertainty meanwhile economists write highly stylized damage functions to speculate about how climate change alters macroeconomic and growth opportunities how can we assess both climate and emissions impacts as well as uncertainty in the broadest sense in social decision making we provide a framework for answering this question by embracing recent decision theory and tools from asset pricing and we apply this structure with its interacting components to a revealing quantitative illustration

global warming and a potential tipping point in the atlantic thermohaline circulation the role of risk aversion the risk of catastrophes is one of the greatest threats of climate change yet conventional assumptions shared by many integrated assessment models such as dice lead to the counterintuitive result that higher concern about climate change risks does not lead to stronger near term abatement efforts this paper examines whether this result still holds in a refined dice model that employs the epstein zin utility specification and that is fully coupled with a dynamic tipping point model describing the evolution of the atlantic thermohaline circulation thc risk is captured by the possibility of a future collapse of the circulation and it is nourished by fat tailed uncertainty about climate sensitivity this uncertainty is assumed to resolve in the middle of the second half of this century and the near term abatement efforts which are undertaken before that point of time can be adjusted afterwards these modelling choices allow posing the question of whether aversion to this specific tipping point risk has a significant effect on near term policy efforts the simulations however provide evidence that it has little effect for the more likely climate sensitivity values a collapse of the circulation would occur in the more distant future in this case acting after learning can prevent the catastrophe implying the remarkable insensitivity of the near term policy to risk aversion for the rather unlikely and high climate sensitivity values the expected damage costs are not great enough to justify taking very costly measures to safeguard the thc our simulations also provide some indication that risk aversion might have some effect on near term policy if inertia limiting the speed of decarbonisation is accounted for as it is highly uncertain how restrictive this kind of inertia will be future research might investigate the effects of risk aversion if additional uncertainty about inertia is considered

determining the social cost of carbon under damage and climate sensitivity uncertainty this article quantifies the impact on optimal climate policy of both damage elasticity and equilibrium climate sensitivity uncertainty under separable preferences for risk and intergenerational inequality the primary findings are as follows 1 such preferences can depress the social cost of carbon scc when calibration aims at matching actual economic outcomes countering the prevailing view that the scc is greater with separable than with conventional entangled preferences 2 damage elasticity uncertainty has larger effects on climate policy than equilibrium climate sensitivity uncertainty even under high impact tail risk of the latter 3 risk aversion decisively strengthens optimal climate policy under joint damage and climate sensitivity uncertainty than with a single source of uncertainty alone indeed failing to account for the interaction between damage and climate sensitivity uncertainty underestimates the cost of climate change by more than us dollars 1 trillion

a review of the stern review on the economics of climate change the stern review calls for immediate decisive action to stabilize greenhouse gases because the benefits of strong early action on climate change outweighs the costs the economic analysis supporting this conclusion consists mostly of two basic strands the first strand is a formal aggregative model that relies for its conclusions primari ly upon imposing a very low discount rate concerning this discount rate aspect i am skeptical of the review s formal analysis but this essay points out that we are actual ly a lot less sure about what interest rate should be used for discounting climate change than is commonly acknowledged the review s second basic strand is a more intuitive argument that it might be very important to avoid possibly large uncertain ties that are difficult to quantify concerning this uncertainty aspect i argue that it might be recast into sound analytical reasoning that might justify some of the review s conclusions the basic issue here is that spending money to slow global warming should perhaps not be conceptualized primarily as being about consump tion smoothing as much as being about how much insurance to buy to offset the small change of a ruinous catastrophe that is difficult to compensate by ordinary savings

declining discount rates and the fisher effect inflated past discounted future uncertain and persistent real interest rates underpin one argument for using a declining term structure of social discount rates in the expected net present value enpv framework despite being controversial this approach has influenced both the inter agency working group on cost benefit analysis and the uk government s guidelines on discounting we first clarify the theoretical basis of the enpv approach then rather than following previous work which used a single series of u s treasury bond returns we treat nominal interest rates and inflation as co integrated series and estimate the empirical term structure of discount rates via the fisher effect this nests previous empirical models and is more flexible it also addresses an irregularity in previous work which used data on nominal interest rates until 1950 and real interest rates thereafter as we show the real and nominal data have very different time series properties this paper therefore provides a robustness check on previous discounting advice and updated methodological guidance at a time when governments around the world are reviewing their guidelines on social discounting the policy implications are discussed in the context of the social cost of carbon nuclear decommissioning and public health

carbon prices for the next hundred years this paper examines the socially optimal pricing of carbon emissions over time when climate change impacts are unknown potentially high consequence events the carbon price tends to increase with income but learning about impacts or their absence decouples the carbon price from income growth the price should grow faster than the economy if the past warming is not substantial enough for learning the true long run social cost it grows slower than the economy as soon as the warming generates information about events that could have arrived but have not done so a quantitative assessment shows that the price grows roughly at the rate of the economy for the next 100 years

the emergence of a regional financial architecture in asia this paper provides an assessment of monetary and financial cooperation in asia since the regional financial crisis of 1997 98 with a view to determining whether the emerging regional financial architecture in asia is compatible with the global financial architecture and what are the prospects for possible economic and monetary union monetary and financial cooperation has focused on four architectural pillars economic policy surveillance crisis prevention liquidity support and bond market development which can be consistent with the global architecture however progress toward full integration is likely to be gradual and experimental given the lack of strong regional institutions regional economic disparities and the need to build political commitment to such a goal

the behavioural economics of climate change this paper attempts to bring some central insights from behavioural economics into the economics of climate change in particular it discusses i implications of prospect theory the equity premium puzzle and time inconsistent preferences in the choice of discount rate used in climate change cost assessments and ii the implications of various kinds of social preferences for the outcome of climate negotiations several reasons are presented for why it appears advisable to choose a substantially lower social discount rate than the average return on investments it also seems likely that taking social preferences into account increases the possibilities of obtaining international agreements compared to the standard model however there are also effects going in the opposite direction and the importance of sanctions is emphasized

a 4 stated dice quantitatively addressing uncertainty effects in climate change we introduce a version of the dice 2007 model designed for uncertainty analysis dice is a wide spread deterministic integrated assessment model of climate change climate change long term economic development and their interactions are highly uncertain the quantitative analysis of optimal mitigation policy under uncertainty requires a recursive dynamic programming implementation of integrated assessment models such implementations are subject to the curse of dimensionality every increase in the dimension of the state space is paid for by a combination of exponentially increasing processor time lower quality of the value or policy function approximations and reductions of the uncertainty domain the paper promotes a state reduced recursive dynamic programming implementation of the dice 2007 model we achieve the reduction by simplifying the carbon cycle and the temperature delay equations we compare our model s performance and that of the dice model to the scientific aogcm models emulated by magicc 6 0 and find that our simplified model performs equally well as the original dice model our implementation solves the infinite planning horizon problem in an arbitrary time step the paper is the first to carefully analyze the quality of the value function approximation using two different types of basis functions and systematically varying the dimension of the basis we present the closed form continuous time approximation to the exogenous discretely and inductively defined processes in dice and we present a numerically more efficient re normalized bellman equation that in addition can disentangle risk attitude from the propensity to smooth consumption over time

discounting the distant future how much do uncertain rates increase valuations abstract we demonstrate that when the future path of the discount rate is uncertain and highly correlated the distant future should be discounted at significantly lower rates than suggested by the current rate we then use two centuries of us interest rate data to quantify this effect using both random walk and mean reverting models we compute the certainty equivalent rate that summarizes the effect of uncertainty and measures the appropriate forward rate of discount in the future under the random walk model we find that the certainty equivalent rate falls continuously from 4 to 2 after 100 years 1 after 200 years and 0 5 after 300 years at horizons of 400 years the discounted value increases by a factor of over 40 000 relative to conventional discounting applied to climate change mitigation we find that incorporating discount rate uncertainty almost doubles the expected present value of mitigation benefits

a dynamic analysis of human welfare in a warming planet anthropogenic greenhouse gas ghg emissions have caused atmospheric concentrations with no precedents in the last half a million years inducing serious uncertainties about future climates and their effects on human welfare recent climate science supports the view that the climate stabilization will require very low ghg emissions in the future we ask is a path of low emissions compatible with sustainable levels of human welfare with steady growth in human quality of life addressing these questions requires both defining welfare criteria and empirically estimating the possible paths of the economy we specify and calibrate a dynamic model with four intertemporal links education physical capital knowledge and the environment in line with nordhaus 2008a and with the stern review 2007 we assume that ghg emissions allow increased production while a higher stock of atmospheric carbon decreases production our index of human welfare which we call quality of life quol emphasizes education knowledge and the environment affected by greenhouse gas emissions in addition to consumption and leisure thus we avoid a consumptionist fallacy that welfare depends only on commodity consumption and perhaps leisure we reject discounted utilitarianism as a normative criterion and consider two alternatives the first is an intergenerational maximin criterion which maximizes the quality of life of the first generation subject to maintaining at least that level for all successive generations the second is human development optimization that seeks the maximization of the quol of the first generation subject to achieving a given constant rate of growth in all subsequent generations hence our analysis focuses on a human notion of sustainability as opposed to the conventional green sustainability limited to keeping the quality of the environment constant because our dynamic optimization programs defy explicit analytical solutions our approach has been computational as a benchmark we consider a simple model with physical and human capital for which we prove a turnpike theorem we then devise a computational algorithm inspired by the turnpike property to construct feasible although not necessarily optimal paths in the more complex and realistic model our analysis indicates that with ghg emission paths entailing very low emissions in the future positive rates of growth in quol are possible while the first generation experiences a quol higher than the historical reference level we also observe a tradeoff between the quality of life of the first generation and the rate of growth in the quality of life yet generation 1 s sacrifice for the sake of a higher growth rate appears to be small the paths that we compute involve investments in knowledge at noticeably higher levels than in the past

optimal taxes on fossil fuel in general equilibrium we analyze a dynamic stochastic general equilibrium dsge model with an externality through climate change from using fossil energy our central result is a simple formula for the marginal externality damage of emissions or equivalently for the optimal carbon tax this formula which holds under quite plausible assumptions reveals that the damage is proportional to current gdp with the proportion depending only on three factors i discounting ii the expected damage elasticity how many percent of the output flow is lost from an extra unit of carbon in the atmosphere and iii the structure of carbon depreciation in the atmosphere thus the stochastic values of future output consumption and the atmospheric co2 concentration as well as the paths of technology whether endogenous or exogenous and population and so on all disappear from the formula we find that the optimal tax should be a bit higher than the median or most well known estimates in the literature we also formulate a parsimonious yet comprehensive and easily solved model allowing us to compute the optimal and market paths for the use of different sources of energy and the corresponding climate change we find coal rather than oil to be the main threat to economic welfare largely due to its abundance we also find that the costs of inaction are particularly sensitive to the assumptions regarding the substitutability of different energy sources and technological progress

numerical analysis of non constant pure rate of time preference a model of climate policy abstract when current decisions affect welfare in the far distant future as with climate change the use of a declining pure rate of time preference prtp provides potentially important modeling flexibility the difficulty of analyzing models with non constant prtp limits their application we describe and provide software available online to implement an algorithm to numerically obtain a markov perfect equilibrium for an optimal control problem with non constant prtp we apply this software to a simplified version of the numerical climate change model used in the stern review for our calibration the policy recommendations are less sensitive to the prtp than widely believed

did the stern review underestimate us and global climate damages abstract the stern review received widespread attention for its innovative approach to the economics of climate change when it appeared in 2006 and generated controversies that have continued to this day one key controversy concerns the magnitude of the expected impacts of climate change stern s estimates based on results from the page2002 model sounded substantially greater than those produced by many other models leading several critics to suggest that stern had inflated his damage figures we reached the opposite conclusion in a recent application of page2002 in a study of the costs to the us economy of inaction on climate change this article describes our revisions to the page estimates and explains our conclusion that the model runs used in the stern review may well underestimate us and global damages stern s estimates from page2002 implied that mean business as usual damages in 2100 would represent just 0 4 percent of gdp for the united states and 2 2 percent of gdp for the world our revisions and reinterpretation of the page model imply that climate damages in 2100 could reach 2 6 percent of gdp for the united states and 10 8 percent for the world

economists value judgments and climate change a view from feminist economics abstract a number of recent discussions about ethical issues in climate change as engaged in by economists have focused on the value of the parameter representing the rate of time preference within models of optimal growth this essay examines many economists antipathy to serious discussion of ethical matters and suggests that the avoidance of questions of intergenerational equity is related to another set of value judgments concerning the quality and objectivity of economic practice using insights from feminist philosophy of science and research on high reliability organizations this essay argues that a more ethically transparent real world oriented and flexible economic practice would lead to more reliable and useful knowledge

taxes and quotas for a stock pollutant with multiplicative uncertainty we compare taxes and quotas when firms and the regulator have asymmetric information about the slope of firms abatement costs damages are caused by a stock pollutant we calibrate the model using cost and damage estimates of greenhouse gasses taxes dominate quotas as with additive uncertainty this model with multiplicative uncertainty allows us to compare expected stock levels under the two policies and to investigate the importance of stock size and the magnitude of uncertainty on the policy ranking

emissions targets and the real business cycle intensity targets versus caps or taxes for reducing greenhouse gas emissions intensity targets are attracting interest as a flexible mechanism that would better allow for economic growth than emissions caps for the same expected emissions however the economic responses to unexpected productivity shocks differ using a real business cycle model we find that a cap dampens the effects of productivity shocks in the economy on all variables except for the shadow value of the emissions constraint an emissions tax leads to the same expected outcomes as a cap but with greater volatility certainty equivalent intensity targets maintain higher levels of labor capital and output than other policies with lower expected costs and no more volatility than with no policy

a new global deal on climate change a global target of stabilizing greenhouse gas concentrations at between 450 and 550 parts per million carbon dioxide equivalent ppm co2e has proven robust to recent developments in the science and economics of climate change retrospective analysis of the stern review 2007 suggests that the risks were underestimated indicating a stabilization target closer to 450 ppm co2e climate policy at the international level is now moving rapidly towards agreeing an emissions pathway and distributing responsibilities between countries a feasible framework can be constructed in which each country takes on its own responsibilities and targets based on a shared understanding of the risks and the need for action and collaboration on climate change the global deal should contain six key features i a pathway to achieve the world target of 50 per cent reductions by 2050 where rich countries contribute at least 75 per cent of the reductions ii global emissions trading to reduce costs iii reform of the clean development mechanism to scale up emission reductions on a sectoral or benchmark level iv scaling up of rd v an agreement on deforestation and vi adaptation finance

unemployment and labor market reform a contract theoretic approach why do many democracies fail to reform their labor market institutions to answer this question we study the feasibility of reforms that include compensation to insiders for the removal of labor market regulations under asymmetric information a reformer who wants to buy the approval of voters has to pay them an informational rent in addition to the pure costs of compensation that would arise under symmetric information in this setting unemployment may be constrained pareto efficient labor market reforms may fail politically because none of the reform packages proposed wins the approval of a majority of voters we also discuss the role of capital taxation in a reform program jel classification d70 e61 j68

scientific progress and irreversibility an economic interpretation of the precautionary principle abstract we consider the problem of the optimal use of a good whose consumption can produce damages in the future scientific progress is made over time that provides information on the distribution of the intensity of damages we show that this progress induces earlier prevention effort only if prudence is larger than twice absolute risk aversion this paper thus identifies the class of quite restrictive but plausible conditions such that scientific uncertainties justify an immediate reduction of the consumption of a potentially toxic substance

sustainable management of fossil fuels a dynamic stochastic optimization approach with jump diffusion abstract this paper deals with a relevant aspect of energy modeling i e fossil fuels management the issue is faced by using purely operational research techniques which are suitable in this context in particular a dynamic stochastic optimization model is developed to optimally determine use and stock of resources to be employed in consumption and investments in a wide economic sense human and physical capital r d etc it is assumed that a sustainability criterion drives the optimality rules i e decisions are also grounded on the well being of future generations the policymaker maximizes an aggregated intergenerational expected utility under the dilemma of present consumption conservation of natural resources for the future in reference to standard environmental economic theory jump diffusion dynamics for the stock of natural resources and infinite time horizon are assumed extensive numerical experiments complete the analysis and contribute to determine fossil fuels management policies showing that long term investments make the difference for the well being of present and future generations

epstein zin utility in dice is risk aversion irrelevant to climate policy climate change involves uncertain probabilities of catastrophic risks and very longterm consequences of current actions climate economics therefore is centrally concerned with the treatment of risk and time yet conventional assumptions about utility and optimal economic growth create a perverse connection between risk aversion and time preference such that more aversion to current risks implies less concern for future outcomes and vice versa the same conflation of risk aversion and time preference leads to the equity premium puzzle in finance a promising response to the equity premium puzzle the recursive utility of epstein and zin allows separation of risk aversion and time preference at the cost of considerable analytic complexity we introduce an accessible implementation of epstein zin utility into the dice model of climate economics creating a hybrid ez dice model using epstein zin parameters from the finance literature and climate uncertainty parameters from the science literature we find that the optimal climate policy in ez dice calls for rapid abatement of carbon emissions it is similar to standard dice results with the discount rate set to equal the risk free rate of return ez dice solutions are sensitive to the intertemporal elasticity of substitution but remarkably insensitive to risk aversion insensitivity to risk aversion may reflect the difficulty of modeling catastrophic risks within dice implicit in dice are strong assumptions about the cost of climate stabilization and the certainty and speed of success under these assumptions risk aversion would in fact be unimportant a more realistic analysis will require a subtler treatment of catastrophic climate risk

a quantitative minimax regret approach to climate change does discounting still matter abstract using cost benefit analysis to determine an optimal climate mitigation target is criticised especially because i it fails to sufficiently take into account low probability high impact events and ii results strongly depend on the discount rate used one of the alternative suggestions to inform policymakers about the right mitigation target that does take the risks associated with low probability high impact events explicitly into account is the minimax regret criterion we apply the minimax regret criterion quantitatively using an integrated assessment model with extreme values for climate sensitivity damage estimates and mitigation costs the goal is to analyse whether such a method leads to different results compared to standard cost benefit analysis and whether the results are still sensitive to the discount rate used we find that the minimax regret approach leads to more stringent and robust climate targets for relatively low discount rates and if both a high climate sensitivity and high damage estimates are assumed if one of these assumptions does not hold the difference between the minimax regret approach and standard cost benefit analysis is much smaller therefore we conclude that the discount rate used can still be of vital importance even when applying a minimax regret approach

dynamics of energy technologies and global change technological choices largely determine the long term characteristics of industrial society including impacts on the natural environment however the treatment of technology in existing models that are used to project economic and environmental futures remains highly stylized based on work over two decades at iiasa we present a useful typology for technology analysis and discuss methods that can be used to analyze the impact of technological changes on the global environment especially global warming our focus is energy technologies the main source of many atmospheric environmental problems we show that much improved treatment of technology is possible with a combination of historical analysis and new modeling techniques in the historical record we identify characteristic l such network e ects yield high barriers to entry even for superior competitors these simple observations allow three improvements to modeling of technological change and its consequences for global environmental change one is that the replacement of long lived infrastructures over time has also replaced the fuels that power the economy to yield progressively more energy per unit of carbon pollution from coal to oil to gas such replacement has d they also include endogenous generation of s we show that doing so can yield projections with lessened environmental impacts without necessarily incurring negative e ect on the economy arriving on that path by the year 2100 depends on intervening actions such as incentives to promote greater diversity in technology and lower barriers to entry for new infrastructures that could accelerate historical trends of decarbonization 1999 elsevier science ltd all rights reserved

the nobel memorial prize for william d nordhaus william d nordhaus and paul m romer received the 2018 sveriges riksbank prize in economic sciences in memory of alfred nobel this paper surveys nordhaus contributions on integrating climate change into long run macroeconomic analysis for which he was recognized with this prize

bayesian learning growth and pollution abstract environmental problems such as climate change have great uncertainties current expectations are that uncertainties about climate change will be resolved quickly we examine this hypothesis theoretically and computationally we consider bayesian learning about the relationship between greenhouse gas levels and global mean temperature changes a key uncertainty learning is non trivial because of a stochastic shock to the realized temperature we find theoretically the expected learning time which is related to the variance of the shock and the emissions policy implying a tradeoff between the benefits of controlling emissions and information we imbed the learning model into an optimal growth model with a climate sector and solve the resulting dynamic program we find computationally that learning takes on average over 90 yr far longer than currently believed

winning games versus winning championships the economics of fan interest and team performance championship prospects as distinct from game winning prospects may contribute to a fan s interest in a particular sports team if so then both season length and the structure of championship playoffs help determine the equilibrium allocation of playing skills across the teams of a league evidence from a regression analysis of team attendance in baseball indicates that ticket demand depends in part on perceived flag winning prospects several patterns in the winning percentages of league leaders in the major u s team sports are consistent with the perspective that championship considerations influence the allocation of playing skills

the climate beta how does climate change mitigation affect the aggregate consumption risk borne by future generations in other words what is the climate beta in this paper we argue using a combination of theory and integrated assessment modelling that the climate beta is positive and close to unity for maturities of up to about one hundred years this is because the positive effect on the climate beta of uncertainty about exogenous emissions neutral technological progress overwhelms the negative effect on the climate beta of uncertainty about the carbon climate response particularly the climate sensitivity and the damage intensity of warming mitigating climate change therefore has no insurance value to hedge the aggregate consumption risk borne by future generations on the contrary it increases that risk which justifies a relatively high discount rate on the expected benefits of emissions reductions however the stream of undiscounted expected benefits is also increasing in the climate beta and this dominates the discounting effect so that overall the net present value of carbon emissions abatement is increasing in the climate beta

location and survival in the national hockey league a model of professional sport franchises is introduced and used to explore the locational and other determi nants of profitability particular attention is paid to the effect of location on attendance market power and long run team quality whe n estimated using data for the national hockey league in 1977 78 the model indicates that location has an effect on each of these and tha t their combined effect on profitability is effective in explaining p rior and subsequent decisions concerning league expansion and franchi se relocation a number of other matters are also addressed includin g league arguments for antitrust exemption and league policies to res trict expansion copyright 1988 by blackwell publishing ltd

the impact of climate change on the balanced growth equivalent an application of fund the stern review added balanced growth equivalents bge to the economic climate change research agenda we first propose rigorous definitions of the bge for multiple regions and under uncertainty we show that the change in the bge is independent of the assumed scenario of per capita income for comparable welfare economic assumptions as the stern review we calculate lower changes in bge between a business as usual scenario and one without climate impacts with the model fund than the stern review found with the model page we find that mitigation policies give even lower changes in bge and argue that those policy choices should be the focus of the research effort rather than total damage estimates according to our results the current carbon tax should be below 55 tc sensitivity analyses show that the stern review chose parameters that imply high impact estimates however for regionally disaggregated welfare functions we find changes in bge that are significantly higher than the results from the stern review both for total damage as for policy analysis with regional disaggregation and high risk aversion we observe fat tails and with that very high welfare losses

a review of the stern review on the economics of climate change how much and how fast should we react to the threat of global warming the stern review argues that the damages from climate change are large and that nations should undertake sharp and immediate reductions in greenhouse gas emissions an examination of the review s radical revision of the economics of climate change finds however that it depends decisively on the assumption of a near zero time discount rate combined with a specific utility function the review s unambiguous conclusions about the need for extreme immediate action will not survive the substitution of assumptions that are consistent with today s marketplace real interest rates and savings rates

a regional dynamic general equilibrium model of alternative climate change strategies outcomes and noncooperative equilibria this study finds that cooperative policies show much higher levels of emissions reductions than do noncooperative strategies that there are substantial differences in the levels of controls in both the cooperative and the noncooperative policies among different countries and that high income countries may be the major losers from cooperation jel h41 q4 q2 q20

optimal climate change mitigation under long term growth uncertainty stochastic integrated assessment and analytic findings abstract economic growth over the coming centuries is one of the major determinants of today s optimal greenhouse gas mitigation policy at the same time long run economic growth is highly uncertain this paper is the first to evaluate optimal mitigation policy under long term growth uncertainty in a stochastic integrated assessment model of climate change the sign and magnitude of the impact depend on preference characteristics and on how damages scale with production we explain the different mechanisms driving optimal mitigation under certain growth under uncertain technological progress in the discounted expected utility model and under uncertain technological progress in a more comprehensive asset pricing model based on epstein zin weil preferences in the latter framework the dominating uncertainty impact has the opposite sign of a deterministic growth impact the sign switch results from an endogenous pessimism weighting all of our numeric scenarios use a dice based assessment model and find a higher optimal carbon tax than the deterministic dice base case calibration

the climate change learning curve abstract the purpose of this paper is to confront economic models of climate change with the reality that limited information exists with which to form expectations about the evolution of the climate a key element in the tension between those who believe we should impose aggressive climate change mitigation policies and those who do not is the question of if we are merely in a long period of shock induced above average temperatures or if observed increases in temperature are a result of carbon emissions this paper characterizes learning dynamics resulting from the use of observations of temperature to update beliefs about two key characteristics of global climate the persistence of natural trends and the sensitivity of temperature to atmospheric carbon levels this paper shows that contrary to predictions in the literature that uncertainty may be resolved very quickly the time to learn the true processes may be in the order of thousands of years further this paper shows the effects of uncertainty on the likelihood that observations from the statistical record lead to important estimate and policy errors

competitive balance versus competitive intensity before a match is one of these two concepts more relevant in explaining attendance the case of the french football ligue 1 over the period 2008 2011 the aim of this article is to investigate the determinants of attendance at french football ligue 1 matches over the period 2008 2011 with an emphasis on examining the effects of both competitive balance and intensity before a match competitive balance is measured by the point difference between the two teams concerned by a match in the championship competitive intensity is measured by the point difference for the home team in relation to ranks with sporting stakes results show that competitive balance has an insignificant impact whereas competitive intensity has a significantly positive impact implications are drawn

ethics of the discount rate in the stern review on the economics of climate change any comparison of the costs and benefits of climate change is dominated by the chosen discount rate but although the stern review emphasises the ethical nature of the parameters entering into its choice of a relatively low discount rate its discussion of the pure time preference parameter is unbalanced in particular no consideration is given to the role of agent relative ethics which i has a wellestablished philosophical pedigree going back to david hume ii is likely to correspond closely to world wide public attitudes towards intergenerational welfare and iii would entail discounting a unit of welfare accruing to future generations compared to an equal unit accruing to people alive today at a positive rate the authors also discuss the other ethical parameter upon which the discount rate depends namely the elasticity of marginal utility with respect to consumption in the conventional model this simultaneously reflects different aspects of inequality aversion as well as risk aversion which complicates its interpretation finally they discuss the divergence between market rates of discount and the low rate chosen in the review and the limitations on the one hand on the normative significance of market rates as well as the danger on the other hand of relying on rates chosen by elites or philosopher kings

on the collapse of historical civilizations to explain the collapse of historical civilizations scholars typically point to suboptimal behaviors including misunderstanding the natural environment shortsightedness or a lack of institutions we examine the collapse of four historical societies with a model of endogenous population growth and renewable resources employing components of optimal resource management economic growth theory and the moral philosophy of social welfare function choice we find that these collapses may have been socially optimal further we show that the transient behavior of the system is more sensitive to assumptions than the equilibrium behavior and that focusing solely on equilibria may miss key insights copyright 2009 oxford university press

social discounting under uncertainty a cross country comparison recent research suggests that social cost benefit analysis should be conducted with a declining discount rate for instance newell and pizer discounting the distant future how much do uncertain rates increase valuations j environ econ manage 46 2003 52 71 show that the us certainty equivalent discount rate declines through time using a simple autoregressive model of us interest rates this paper extends that line of research estimating both autoregressive and regime switching models of real interest rates to determine certainty equivalent discount rates in australia canada germany and the uk it is found that the regime switching model is a better model of past interest rate behavior for all four countries this model tends to produce a more rapid decline in certainty equivalent discount rates the paper provides applications to the economics of climate change and nuclear power

precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society

time perspective and climate change policy the tendency to foreshorten time units as we peer further into the future provides an explanation for hyperbolic discounting at an inter generational time scale we study implications of hyperbolic discounting for climate change policy when the probability of a climate induced catastrophe depends on the stock of greenhouse gasses we characterize the set of markov perfect equilibria mpe of the inter generational game amongst a succession of policymakers each policymaker reflects her generation s preferences including its hyperbolic discounting for a binary action game we compare the mpe set to a restricted commitment benchmark we compare the associated constant equivalent discount rates and the willingness to pay to control climate change with assumptions and recommendations in the stern review on climate change ymy picture of the world is drawn in perspectivey i apply my perspective not merely to space but also to time ramsey

endogenous discounting and climate policy under risk of abrupt climate change the occurrence hazard is added to the social discount rate as a result the social discount rate 1 increases and 2 turns endogenous to the global warming policy the second effect bears profound policy implications that are magnified by economic growth in particular we find that greenhouse gases ghg emission should be terminated at a finite time so that the ensuing occurrence risk will vanish in the long run due to the public bad nature of the catastrophic risk the second effect is ignored in a competitive allocation and unregulated economic growth will give rise to excessive emissions in the long term the ghg emission paths under the optimal and competitive growth regimes lie at the extreme ends of the range of feasible emissions