Sacrifice, Discounting and Climate Policy: Five Questions

Abstract

I offer a selective review of discounting and climate policy. Analytic and numerical models show that different assumptions greatly change the degree to which decisions about climate policy depend on the discount rate. I discuss a claim that standard models exaggerate the current generation’s sacrifices needed to internalize climate damages. This claim, if correct, affects the role of discounting. I argue that the assertion that the risk of catastrophic damage overwhelms discounting is unfounded. I show that the claim that we “view the world in perspective” implies hyperbolic rather than constant discounting.

Keywords: climate change, discounting, intergenerational conflict, catastrophic risk, hyperbolic discounting

JEL Classification: C61, C73, D63, D99, Q54