Willingness to Pay of the Expo-Power Utility Decision Maker to Limit Climate Change
28 Pages Posted: 15 Feb 2020
Date Written: January 24, 2017
This paper extends the work of Pindyck  by taking into consideration a large class family of different utility functions of economic agents. As in Pindyck , instead of considering a social utility function that is characterized by constant relative risk aversion (C.R.R.A), we use the expo-power utility function of Saha . In fact, depending on the choice of the expo-power utility function parameters, we cover a diverse range1 of utility functions and besides covering the other utility functions that a C.R.R.A omits, Expo-power function permits us to discern if under the other behaviors of economic agents, the willingness to pay remains more affected by uncertain outcomes than certain outcomes, when we vary the expectation and standard deviation of the temperature distribution probability. Our paper has maintained the small-tailed gamma distributions of temperature and economic impact of Pindyck , not only because they hinder infinite future welfare losses (for an exponential utility function), but because it is easy to change some moments of the distribution (jointly or holding the others fixed) while studying how uncertainty influences the willingness to pay as explained in Pindyck .
Keywords: Willingness to Pay, Climate Change, Expo-Power Utility; I.A.R.A, D.A.R.A, I.R.R.A
JEL Classification: C12; C58; D52; G13; Q11; Q14
Suggested Citation: Suggested Citation