Now or Never: Environmental Protection under Hyperbolic Discounting

Economics: The Open-Access, Open-Assessment E-Journal, Vol. 3, 2009

27 Pages Posted: 8 Apr 2009 Last revised: 27 Apr 2009

See all articles by Ralph Winkler

Ralph Winkler

University of Bern - Department of Economics; University of Bern - Oeschger Centre for Climate Change Research

Multiple version iconThere are 4 versions of this paper

Date Written: April 9, 2009

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.

Keywords: Environmental policy, Environmental protection, Hyperbolic discounting, Markov perfect equilibria, Time-inconsistency

JEL Classification: D90, Q50, Q58

Suggested Citation

Winkler, Ralph, Now or Never: Environmental Protection under Hyperbolic Discounting (April 9, 2009). Economics: The Open-Access, Open-Assessment E-Journal, Vol. 3, 2009. Available at SSRN: https://ssrn.com/abstract=1374839

Ralph Winkler (Contact Author)

University of Bern - Department of Economics ( email )

Schanzeneckstrasse 1
Bern, 3001
Switzerland
+41 31 631 4508 (Phone)

HOME PAGE: http://www.ralph-winkler.de

University of Bern - Oeschger Centre for Climate Change Research ( email )

Zähringerstrasse 25
Bern, 3012
Switzerland

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