International Inequity Aversion and the Social Cost of Carbon

Climate Change Economics (CCE), World Scientific, Forthcoming

Posted: 2 Jun 2010

See all articles by Richard S. J. Tol

Richard S. J. Tol

The Economic and Social Research Institute, Dublin; Institute for Environmental Studies, Free University Amsterdam

Date Written: May 1, 2010

Abstract

I define the rate of inequity aversion, distinguishing between the pure rate and the consumption rate. I measure the rate of aversion to inequality in consumption as expressed in the development aid given by rich countries to poor ones between 1965 and 2005. There is an ambiguous relationship between the pure rate of inequity aversion and the consumption rate, driven by the rate of risk aversion. However, for a reasonable choice of the rate of risk aversion, rich countries are shown to be inequity averse, and increasingly so over time. The social cost of carbon is very sensitive to equity weighting and assumptions about the rate of risk and inequity aversion. Estimates of the consumption rate of inequity aversion for recent data suggest that the equity-weighted social cost of carbon is less than 50% larger than the unweighted estimate.

Keywords: Inequity aversion, risk aversion, income distribution, development aid, climate change, social cost of carbon

Suggested Citation

Tol, Richard S. J., International Inequity Aversion and the Social Cost of Carbon (May 1, 2010). Climate Change Economics (CCE), World Scientific, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1618687

Richard S. J. Tol (Contact Author)

The Economic and Social Research Institute, Dublin ( email )

Whitaker Square
Sir John Rogerson's Quay
Dublin 2
United States

HOME PAGE: http://www.esri.ie

Institute for Environmental Studies, Free University Amsterdam ( email )

De Boelelaan 1115
Amsterdam, 1081 HV
Netherlands

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