Now or Never: Environmental Protection Under Hyperbolic Discounting

28 Pages Posted: 18 Dec 2010

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: 2009

Abstract

The author analyzes the optimal investment in environmental protection in a model of an infinite series of non-overlapping hyperbolically discounting agents. He shows that without a commitment mechanism society is eventually stuck in a situation where all agents prefer further investment in the long run, yet neither present nor future agents will actually ever invest. Such an outcome is not only unsatisfactory for each generation but may also be inefficient in a Pareto sense. The author's results are consistent with real world observations, and thus provide a new explanation for weak environmental policy performance.

Keywords: Environmental policy, environmental protection, hyperbolic discounting, Markov perfect equilibria, tme-inconsistency

JEL Classification: Q50, D90, Q58

Suggested Citation

Winkler, Ralph, Now or Never: Environmental Protection Under Hyperbolic Discounting (2009). Economics Discussion Paper No. 2009-4. Available at SSRN: https://ssrn.com/abstract=1726741 or http://dx.doi.org/10.2139/ssrn.1726741

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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