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Now or Never: Environmental Protection Under Hyperbolic DiscountingRalph WinklerUniversity of Bern - Department of Economics; University of Bern - Oeschger Centre for Climate Change Research 2009 Economics: The Open-Access, Open-Assessment E-Journal, Vol. 3, 2009-12 Abstract: The author analyzes the optimal investment in environmental protection in a model of non-overlapping hyperbolically discounting agents. He shows that, in the long run and in the absence of a commitment device, society is stuck in a situation where all agents prefer further investments, yet no agent invests. This holds no matter whether agents are aware of the time inconsistency of their preferences. As a consequence, awareness of the time-inconsistency problem poses at best a short run remedy. Moreover, such an outcome may be Pareto inefficient and may explain the weak performance of long-run environmental policies. --
Number of Pages in PDF File: 24 Keywords: Environmental policy, environmental protection, hyperbolic discounting, Markov perfect equilibria, time-inconsistency JEL Classification: D90, Q50, Q58 Accepted Paper SeriesDate posted: December 18, 2010Suggested CitationContact Information
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