Article

An Even Sterner Review: Introducing Relative Prices into the Discounting Debate

Review of Environmental Economics and Policy (Impact Factor: 2.15). 04/2008; 2(1):61-76. DOI: 10.1093/reep/rem024
Source: RePEc

ABSTRACT The existing literature on climate change offers little guidance on why one specification or another of a "damages function" has been selected. Ideally, one wants a functional form that captures reality adequately, yet is analytically sufficiently tractable to yield useful results. This paper gives two plausible risk aversion axioms that a reduced form utility function of temperature change and the capacity to produce consumption might reasonably be required to satisfy. These axioms indicate that the standard-practice multiplicative specification of disutility damages from global warming, as well as its additive analogue, are special cases of this paper's theoretically derived utility function. Empirically, the paper gives some numerical examples demonstrating the surprisingly strong implications for economic policy of the distinction between additive and multiplicative disutility damages.

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Available from: Thomas Sterner, Jul 07, 2015
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    • "Different from Q1 and Q2, paths are said to represent " well-being per person — reflecting private consumption, public services, and services provided by nature. " The importance of the latter for integrated assessment models is demonstrated by (Hoel and Sterner, 2007) and (Sterner and Persson, 2008). The purpose of the second questionnaire is to see how these types of overshoots influence implicit discount rates. "
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