The Social Evaluation of Intergenerational Policies and Its Application to Integrated Assessment Models of Climate Change
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Louis Kaplow
Abstract
Assessment of climate change policies requires aggregation of costs and benefits over time and across generations, a process ordinarily done through discounting. Choosing the correct discount rate has proved to be controversial and highly consequential. To clarify past analysis and guide future work, we decompose discounting along two dimensions. First, we distinguish discounting by individuals, an empirical matter that determines their behavior in models, and discounting by an outside evaluator, an ethical matter involving the choice of a social welfare function. Second, for each type of discounting, we distinguish it due to pure time preference from that attributable to curvature of the pertinent function: utility functions (of consumption) for individuals and the social welfare function (of utilities) for the evaluator. We apply our analysis to leading integrated assessment models used to evaluate climate policies. We find that past work often confounds different sources of discounting, and we offer suggestions for avoiding these difficulties. Finally, we relate the standard intergenerational framework that combines considerations of efficiency and distribution to more familiar modes of analysis that assess most policies in terms of efficiency, leaving distributive concerns to the tax and transfer system.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Articles in the same Issue
- Symposium
- Distributional Implications of Alternative U.S. Greenhouse Gas Control Measures
- Comment on 'Distributional Implications of Alternative U.S. Greenhouse Gas Control Measures'
- Equity, Heterogeneity and International Environmental Agreements
- Comment on "Equity, Heterogeneity and International Environmental Agreements"
- Climate Policy's Uncertain Outcomes for Households: The Role of Complex Allocation Schemes in Cap-and-Trade
- Comment on "Climate Policy's Uncertain Outcomes for Households: The Role of Complex Allocation Schemes in Cap-and-Trade"
- The Social Evaluation of Intergenerational Policies and Its Application to Integrated Assessment Models of Climate Change
- Comment on "The Social Evaluation of Intergenerational Policies and Its Application to Integrated Assessment Models of Climate Change"
- What are the Costs of Meeting Distributional Objectives for Climate Policy?
- Comment on "What are the Costs of Meeting Distributional Objectives for Climate Policy?"
- CIM-EARTH: Framework and Case Study
- Comment on "CIM-EARTH: Framework and Case Study"
- The Global Effects of Subglobal Climate Policies
- Comment on "The Global Effects of Subglobal Climate Policies"
- Analytical General Equilibrium Effects of Energy Policy on Output and Factor Prices
- Comment on "Analytical General Equilibrium Effects of Energy Policy on Output and Factor Prices"
- The Distributional Impact of Climate Policy
- Comment on "The Distributional Impact of Climate Policy"
- On the Economics of Climate Policy
- Comment on "On the Economics of Climate Policy": Is Climate Change Mitigation the Ultimate Arbitrage Opportunity?
