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...
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| Main Authors: | , |
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| Format: | text |
| Language: | English |
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Institutional Knowledge at Singapore Management University
2010
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| Online Access: | https://ink.library.smu.edu.sg/soe_research/1282 https://ink.library.smu.edu.sg/context/soe_research/article/2281/viewcontent/NumericalAnalysis_Climate_2010.pdf |
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| Institution: | Singapore Management University |
| Language: | English |
| Summary: | 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. |
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