Numerical Analysis of Non-Constant Pure Rate of Time Preference: A Model of Climate Policy
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.
Non-constant pure rate of time preference; Hyperbolic discounting; Numerical methods; Non-renewable resources; Observational equivalence; Climate change; Stern Review
Econometrics | Environmental Sciences | Statistics and Probability
The Economics of Climate Change
City or Country
FUJII, Tomoki and Karp, L..
Numerical Analysis of Non-Constant Pure Rate of Time Preference: A Model of Climate Policy. (2010). The Economics of Climate Change. 56, (1), 83-101. Research Collection School Of Economics.
Available at: http://ink.library.smu.edu.sg/soe_research/1282
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