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

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

the utilization of competing technologies within the firm evidence from cardiac procedures this paper examines the role of technological status in determining the rates at which competing techniques are used within a firm consistent with prior studies technological status is measured on the basis of an actor s prior contributions to the body of knowledge concerning a given technique the empirical analysis considers two treatments for coronary artery disease cad each of which is associated with a distinct professional group within a hospital these two groups are often characterized as engaging in a turf war for patients after controlling for several factors that might explain technological choice the clinical severity of patients the relative quality of the two procedures at a given facility firm level financial performance and other firm level characteristics i find that the technological status of the group associated with each technique affects the relative rate at which it is used within a given hospital moreover this effect is strongest for patients at the margin between the two techniques these results suggest that viewing the choice between competing innovations as a single firm level decision may not always capture the true dynamics underlying such a situation

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

the sustainable borders of the state economic crises have historically set the stage for the reconfiguration of the economic borders of the state current concerns focus on debt and associated intergenerational issues such as pensions infrastructure and the environment the sustainable state is designed to put in place a framework for integrating these intergenerational issues alongside the traditional focus on macroeconomic policy static market failures and transfers the building blocks include the accounting framework and in particular a national balance sheet setting out assets and liabilities and providing for capital maintenance over time to support these assets and to provide for sufficient investment the sustainable state requires an appropriate level of savings and institutions to translate these savings into investments two components are the deployment of regulatory asset bases to underpin long term sunk and fixed costs given the time inconsistency problem in government s commitments and the development of financial intermediaries such as an infrastructure bank copyright 2011 oxford university press

estimating level effects in diffusion of a new technology barcode scanning at the checkout counter cross country or cross industry studies of technology diffusion typically estimate how independent factors affect diffusion speed or timing often based on a two stage approach in many applications however countries industries differ most in the saturation level of diffusion in a single stage econometric approach to a standard diffusion model we therefore estimate how the saturation level covaries with independent factors in our application to diffusion of an important retail information technology we focus on the competitive effect of hypermarkets superstores we also find standard scale income and labour substitution effects

a theory of intergenerational altruism modeling intergenerational altruism is crucial to evaluate the long term consequences of current decisions and requires a set of principles guiding such altruism we axiomatically develop a theory of pure direct altruism altruism is pure if it concerns the total utility rather than the mere consumption utility of future generations and direct if it directly incorporates the utility of all future generations our axioms deliver a new class of altruistic forward looking preferences whose weight put on the consumption of a future generation generally depends on the consumption of other generations the only preferences lacking this dependence correspond to the quasi hyperbolic discounting model which our theory characterizes our approach provides a framework to analyze welfare in the presence of altruistic preferences and addresses technical challenges stemming from the interdependent nature of such preferences

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

market structure uncertainty and intrafirm diffusion the case of optical scanners in grocery stores this study uses monthly data on the adoption of optical scanners by sixty three grocery chains in thirty two large u s cities to identify the determinants of the rate of intrafirm diffusion the methodology involves a two stage approach that relates market environment characteristics to the estimated rate of intrafirm diffusion the results indicate that firms with larger market shares adopt a new innovation scanners more quickly initially but diffuse the innovation through their stores more slowly than firms with smaller market shares in addition firms that lag competitors in the initial adoption of scanners tend to diffuse the innovation more quickly copyright 1992 by mit press

the rise and fall of the dollar a comment if readers of this paper were to ask themselves what the rates for the world s major currencies are likely to be in say three years time it is doubtful whether they would have much confidence in their predictions even conditional forecasts on the basis of particular assumptions about policy would be hard to make this state of ignorance and our admission of it owes much to the recent behaviour of the dollar which as koromzay llewellyn and potter so usefully discuss largely defies explanation in terms of conventional economic analysis even when full use is made of the luxury of hindsight that ignorance itself may however have important policy implications these comments relate to both the theoretical and policy aspects of the paper though the focus as in the paper itself is on the implications for policy a general difficulty may be stated at the outset the paper reasonably enough concentrates on the dollar in the i98os but though this is much the most dramatic illustration of the difficulties in explaining exchange rate movements it is not the only one thus ideally an explanation of dollar strength should be consistent with explanations given for previous dollar weakness see for example bliss i986 and for other recent major movements of exchange rates such as the apparently similar gravity defying rise in sterling in the late i970s and early 198os where theory and empirical analysis fail explanations tend to become ad hoc with a danger that false or over strong policy conclusions are drawn even a casual comparison with the united kingdom raises some questions as well as supporting the general thrust of this paper thus the monetary fiscal mix in the united kingdom was very different from that in the united states according to oecd figures the structural budget moved to surplus by some 6 of gdp between i979 and i982 which must at least suggest a cautious approach to some of the simpler stories that trace the rise in the dollar to united states fiscal irresponsibility the united states experience which as the paper demonstrates does not accord with conventional models of the overshootingtype also throws doubt in the other direction about applications of that kind of model to the united kingdom for example by buiter and miller i98i of course the united kingdom s situation was special because of north sea oil but if north sea oil was important the obvious reason would be due to its effect on relative current account positions which does not seem to work well for the united states and in any case most estimates suggest that oil should account for only a part of the rise in sterling see powell and horton i985 for a survey and as in the united states empirical models were notably unsuccessful in predicting the exchange rate haache and townend i98i

innovations and the economics of new technology spreading within and across users gaps and way forward r d subsidies are often considered the main policy tool to stimulate the competitiveness and the innovativeness of firms this is especially true for innovations designed to produce greener products or cleaner and more energy efficient technologies however a consistent literature has now shown that even when a clean or a cost reducing technology is ready available in the market its spreading within intra or across inter households or firms takes several years and in some cases decades therefore it is not only important to generate innovations via investments in r d but it is also important that such innovations are adopted and used by firms this paper briefly illustrates the main theoretical approaches to the analysis of the factors leading to inter firm diffusion and emphasise the existing gap led by the paucity of literature on intra firm diffusion a final section briefly discusses some methodological issues surrounding the diffusion of consumer non durable technologies within and across households and how ad hoc models can be used to test the validity of environmental policies

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

aggregation of heterogeneous time preferences we examine an economy whose consumers have different discount factors for utility possibly not exponential we characterize the properties of efficient allocations of resources and of the shadow prices that would decentralize such allocations we show in particular that the representative agent has a decreasing discount rate when as is usually posited all of a group s members have a constant discount rate and decreasing absolute risk aversion preferences we also identify conditions that lead the representative agent to have a rate of impatience that decreases with gross domestic product per capita

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

making the implicit explicit a look inside the implicit discount rate implicit discount rates idrs are employed in energy models to capture household investment decisions yet the factors behind the idr and their respective implications for policy making usually remain blurred and fractional the proposed comprehensive framework distinguishes three broad categories of factors underlying the idr for household adoption of energy efficient technologies eets preferences notably over time risk loss debt and the environment predictable ir rational behavior bounded rationality rational inattention behavioral biases and external barriers to energy efficiency existing empirical findings suggest that the factors underlying the idrs that differ across household characteristics and technologies should be accounted for in energy models furthermore the framework allows for a fresh look at the interplay of idrs and policies we argue that a simple observation of high idrs or observing correlations between idrs and socio economic characteristics does not provide guidance for policy making since the underlying sources cannot be identified instead we propose that some of the factors underlying the idr notably external barriers can be changed through directed policy interventions whereas other factors notably preferences and predictable ir rational behavior are innate and can only be taken into account through reactive policy interventions

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

climate change green growth and aid allocation to poor countries with serious impacts of climate change looming in a few decades but current poverty still high in the developing world we ask how to spend development aid earmarked for the poor poverty reduction tends to be strongly linked to economic growth but growth impacts the environment and increases co2 emissions so can greener growth that is more climate resilient and less environmentally damaging deliver large scale poverty reduction can aid be used for effective poverty reduction now without affecting carbon emissions substantially we argue that there are bound to be trade offs between emissions reductions and a greener growth on the one hand and growth that is most effective in poverty reduction we argue that development aid earmarked for the poorest countries should only selectively pay attention to climate change and remain focused on fighting current poverty reduction including via economic growth not least as future resilience of these countries and their population will depend on their ability to create wealth and build up human capital now the only use for development aid within the poorest countries for explicit climate related investment ought to be when the investments also contribute to poverty reduction now including for increasing resilience to current impacts of environmental shocks or when the investments done now have serious intertemporal lock in problems so that they have implications also for when climate change bites by 2050 in our conclusions we offer a series of concrete principles to judge development spending

monetary valuation of the social cost of co2 emissions a critical survey an expanding branch of research has estimated the potential costs of climate change which are often expressed as the social cost of carbon scc or the costs of an additional ton of co2 emissions estimates of the scc can be used by policy makers to evaluate climate change policies and greenhouse gas emission reduction projects by means of cost benefit analyses cbas such analyses are complicated by the wide range of scc values that have been reported in the literature and the large uncertainties involved in estimating the potential economic impacts and related costs of climate change this study presents a critical review of the reported scc estimates by examining some neglected consequences of climate change uncertain and extreme scenarios of climate change the discounting of future climate change effects the treatment of individual risk aversion and assumptions about social welfare in view of the many uncertainties and omissions in conventional cost benefit analyses of climate impacts and the scc alternative approaches to decision making should be considered for climate policy

the intra firm diffusion of new process technologies the study of intra firm diffusion has largely been neglected and the limited extant literature overwhelmingly relies upon uncertainty reduction via information spreading or epidemic learning as the main driver in this paper an alternative approach is taken whereby the intra firm diffusion of new process technologies reflects the profitability of new technology adoption as proxied by firm characteristics the approach is tested using data relating to the diffusion of computer numerically controlled machine tools within firms in the uk engineering and metalworking sectors the empirical analysis does not reject the hypothesis that profitability considerations are important with a number of firm characteristics being isolated as of special relevance including firm size and the use of complementary technologies and managerial techniques however there is little support for the traditional epidemic effect

designing climate mitigation policy this us paper provides an exhaustive review of critical issues in the design of climate mitigation policy by pulling together key findings and controversies from diverse literatures on mitigation costs damage valuation policy instrument choice technological innovation and international climate policy the authors begin with the broadest issue of how high assessments suggest the near and medium term price on greenhouse gases would need to be both under cost effective stabilization of global climate and under net benefit maximization or pigouvian emissions pricing the remainder of the paper focuses on the appropriate scope of regulation issues in policy instrument choice complementary technology policy and international policy architectures

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

the social discount rate what discount rate should be applied to social investments it is standard to use the market interest rate thereby respecting private preferences we show that application of this revealed preference criterion rests on faith not on logic it is justified only if preferences over all choices including past choices are time invariant the conditions for this to be true are stringent under more reasonable conditions policy makers should be more patient than private citizens whose choices define the most short sighted pareto optimum

social discounting and intergenerational pareto the most critical issue in evaluating policies and projects that affect generations of individuals is the choice of social discount rate this paper shows that there exist social discount rates such that the planner can simultaneously be i an exponential discounting expected utility maximizer ii intergenerationally pareto that is if all individuals from all generations prefer one policy project to another the planner agrees and iii strongly non dictatorial that is no individual from any generation is ignored moreover to satisfy i iii if the time horizon is long enough it is generically sufficient and necessary for social discounting to be more patient than the most patient individual s long run discounting independent of the social risk attitude

a dynamic analysis of the adoption of a new technology the case of optical scanners two p roportional hazard models are used to investigate the differingeffects of marke t structure variables on the conditional probabilityof a firm initially adoptin g the new technology of optical scanners as the innovation spreads through the f ood store industry during the early stage leading firms with large average sto re size which are not members of chains and which operate in less concentrated m arkets with higher incomes and wage rates tend to adopt scanners sooner later on differences in seller concentration market share and size become less impo rtant as other firms follow prior adoptions copyright 1987 by mit press

interdependences in the intrafirm diffusion of technological innovations confronting the rational and social accounts of diffusion this article investigates the intrafirm diffusion of technological innovations and the interdependences that exist among rival firms in this process previous research has offered two potential explanations for these interdependences social accounts in which they result from institutional pressures and rational accounts in which firms are interdependent as a result of how adoption by rivals affects expectations about the profitability of the technology the article offers two contributions first we propose a competitive interaction mechanism that is consistent with the fundamentals of rational accounts of diffusion second the empirical analysis shows the dominance of the proposed rational mechanism over social accounts of innovation diffusion in the generation of interdependences in the process of intrafirm diffusion

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

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

market segmentation and the diffusion of quality enhancing innovations the case of downhill skiing we report econometric results concerning the diffusion of detachable chairlifts in the united states that provide the first empirical evidence that the adoption of a technological innovation by a firm decreases the likelihood that a local competitor will also adopt it we model the effect that an innovation in service speed has on a f s incentive to differentiate the quality of its service from that of its competitors in our model the incentive to adopt is negatively related to the number of competitors who have already adopted our empirical results support this hypothesis

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

rival precedence and the dynamics of technology adoption an empirical analysis this study employs information on the adoption of automatic teller machines by banking firms to examine the nature of firm reactions to rival precedence in the adoption process using a failure time estimation procedure it is found that the ado ption of this innovation by rivals increases the conditional probabil ity that a decision to adopt will be made the effect of spillovers f rom technology adoption and the interaction of market concentration a nd rival precedence are also investigated finally the study shows w ith an example how the estimation procedure may be used to test the u nderpinnings of diffusion processes copyright 1987 by the review of economic studies limited

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

debt deficits and dollars the world economy in 3 d abstract the world economy in the 1980s was dominated by problems of international debt balance of payments and fiscal deficits and exchange rate instability analyzing these three problems this paper attempts to demonstrate how changes in both the international financial regime and the conduct of macroeconomic policy at the global level are required if they are to be avoided in the 1990s recognizing the bureaucratic and political constraints on far reaching reform the paper spells out a number of less ambitious options which could nonetheless have a beneficial effect on the world economy an implication of all the reforms discussed touching on both financing and adjustment is an increase in the relative importance of the official sector in the form of the international monetary fund imf and the world bank as compared with the private sector in the form of the international commercial banks in this regard as well as in terms of some of their specifics the proposals find a strong antecedent in the keynes plan that was presented to the bretton woods conference in 1944 as then the argument here is that international financial reform based on a coherent perspective of the world economy can make an important contribution toward bringing about balanced and sustainable world economic expansion

present bias and collective dynamic choice in the lab we study collective decisions by time discounting individuals choosing a common consumption stream we show that with any heterogeneity in time preferences utilitarian aggregation necessitates a present bias in lab experiments three quarters of social planners exhibited present biases and less than two percent were time consistent roughly a third of subjects acted as if they were pure utilitarians and the rest chose as if they also had varying degrees of distributional concerns

time to implement and aggregate fluctuations in this paper we slightly modify the canonical rbc model by adding an implementation lag in the technology to reproduce the fact that consumption is a leading indicator of output indeed we assume that agents have today some information on the realization of the technology shock that will occur tomorrow today inventions are known and give information on the innovations which will be implemented tomorrow the model is estimated and tested on us data by a simulated method of moments using some suitable reconstructed data that are compatible with that model the results are in favor of this implementation lag hypothesis the model is not rejected by us post war data

welfare as equity equivalents equity or its counterpart inequity plays a fundamental role in the evaluation of social welfare in different dimensions in this paper we revisit the concept of inequity in the sense of unequal distributions across individuals time and states of the world using a unified framework that generalizes the standard expected discounted utilitarianism approach we propose a general measure of welfare as equity equivalents and a corresponding inequity index we show that allowing for different attitudes toward inequity across different dimensions covers a scope of possible inequity preferences with different interpretations we then prove that the order of aggregation across the different dimensions matters for welfare evaluations finally we show that many of the welfare theoretical approaches recently developed in the literature can be interpreted as special cases of this general framework

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

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

clustering in n player preemption games we study a complete information preemption game in continuous time a finite number of firms decide when to make an irreversible observable investment upon investment a firm receives flow profits which decrease in the number of firms that have invested the cost of investment declines over time exogenously we characterize the subgame perfect equilibrium outcome which is unique up to a permutation of players when the preemption race among late investors is sufficiently intense the preemption incentive for earlier investors disappears and two or more investments occur at the same time we identify a sufficient condition in terms of model parameters clustering of investments occurs if the flow profits from consecutive investments are sufficiently close this shows how clustering can occur in the absence of coordination failures informational spillovers or positive payoff externalities

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

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

justifying social discounting the rank discounted utilitarian approach the popular discounted utilitarian criterion for infinite horizon social choice has been criticized on the ground that it treats successive generations unfairly i propose to evaluate intergenerational welfare with a rank discounted utilitarian rdu criterion instead the criterion amounts to discounted utilitarianism on non decreasing paths but it treats all generations impartially discounting becomes the mere expression of intergenerational inequality aversion i show that more inequality averse rdu societies have higher social discount rates when future generations are better off i apply the rdu approach in two benchmark economic growth models and i prove that it promotes sustainable policies maximizing discounted utility

intrafirm diffusion of new technologies an empirical application research on the diffusion of new technologies has centred on the study of the interfirm rate of diffusion paying much less attention to intrafirm aspects this paper attempts to overcome this gap in the literature by analysing the factors that influence the speed with which a new technology the atm is fully adopted the data over which the hypotheses are tested belongs to the spanish savings banks market the results show that the rate of intrafirm diffusion is explained by innovation firm and market characteristics in testing our hypotheses we make use of both traditional methods and survival analysis techniques

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

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

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

time consistency stationarity and time invariance a sequence of experiments documents static and dynamic preference reversals between sooner smaller and later larger rewards when the sooner reward could be immediate the theoretically motivated design permits separate identification of time consistent stationary a ndtime invariant choices at least half of the subjects are time consistent but only three quarters of them exhibit stationary choices about half of subjects with time inconsistent choices have stationary preferences these results chal lenge the view that present bias preferences are the main source of time inconsistent choices the past twenty years have seen a surge of interest in time inconsistent preferences mostly this has been motivated by psychological experiments and introspection that have suggested the existence of present bias a decision maker prefers smaller immediate reward to a larger delayed reward but when she is asked about her preferences between these two alternatives when both are equally shifted into the future her preferences are reversed although there is no inconsistency per se in her answers this behavior has been taken to suggest that when the decision maker will be asked to update her choices in the future she will generally deviate from her ex ante plans our goal in the present study is to perform a dynamic preference reversal experiment as such one is required to extend the standard framework of pref erences over temporal payments to a dated collection of such preferences this extension allows us to formally define three distinct properties stationarity im plies that ranking of temporal payments depends only on the time distance and payment distance between the alternatives time invariance assumes that the decision maker evaluates each temporal payment relative to the evaluation pe

inequality and social discounting we explore steady state inequality in an intergenerational model with altruistically linked individuals who experience privately observed taste shocks when the welfare function depends only on the initial generation efficiency requires immiseration inequality grows without bound and everyone s consumption converges to zero we study other efficient allocations in which the welfare function values future generations directly placing a positive but vanishing weight on their welfare the social discount factor is then higher than the private one and for any such difference we find that consumption exhibits mean reversion and that a steady state cross sectional distribution for consumption and welfare exists with no one trapped at misery

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 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

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

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