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Time discounting and optimal emission reduction: An application of fund

journal contribution
posted on 2023-06-08, 11:10 authored by Richard TolRichard Tol
Time preferences are a dominant influence in cost-benefit analyses of long-term issues such as climate change. FUND, a model for optimal emission control, is used to spell out this influence. Classic discounting at various rates is contrasted with Heal discounting where the discount factor depends logarithmically on the time distance (it does linearly in the classic case), and Rabl discounting where the discount rate is set to zero at a certain point in the future. The choice of the discount rate has a strong influence on total and short-term emission reduction. The effect of Rabl and Heal discounting is like lowering the classic discount rate. International cooperation has a larger effect on optimal emission reduction, however, than does the discount rate. Larger still is the influence of explicitly taking up long-term goals for atmospheric concentrations in the welfare function, using a modification of the Chichilnisky criterion.

History

Publication status

  • Published

Journal

Climatic Change

ISSN

0165-0009

Publisher

Springer Verlag

Issue

3-4

Volume

41

Page range

351-362

Department affiliated with

  • Economics Publications

Full text available

  • No

Peer reviewed?

  • Yes

Legacy Posted Date

2012-04-18

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