Numerical Analysis of Non-Constant Discounting With an Application to Renewable Resource Management

28 Pages Posted: 1 Jun 2006

See all articles by Tomoki Fujii

Tomoki Fujii

Singapore Management University - School of Economics

Larry S. Karp

University of California, Berkeley

Date Written: May 31, 2006

Abstract

The possibility of non-constant discounting is important in environmental and resource management problems where current decisions affect welfare in the far-distant future, as with climate change. The difficulty of analyzing models with non-constant discounting limits their application. We describe and provide software to implement an algorithm to numerically obtain a Markov Perfect Equilibrium for an optimal control problem with non-constant discounting. The software is available online. We illustrate the approach by studying welfare and observational equivalence for a particular renewable resource management problem.

Keywords: Non-constant discounting, numerical methods, non-renewable resources, observational equivalence

JEL Classification: C63, Q20

Suggested Citation

Fujii, Tomoki and Karp, Larry S., Numerical Analysis of Non-Constant Discounting With an Application to Renewable Resource Management (May 31, 2006). Available at SSRN: https://ssrn.com/abstract=905558 or http://dx.doi.org/10.2139/ssrn.905558

Tomoki Fujii (Contact Author)

Singapore Management University - School of Economics ( email )

90 Stamford Road
178903
Singapore
+6568280279 (Phone)
+6568280833 (Fax)

HOME PAGE: http://www.mysmu.edu/faculty/tfujii/

Larry S. Karp

University of California, Berkeley ( email )

Dept. of Agriculture & Resource Economics
313 Giannini Hall
Berkeley, CA 94720
United States
510-643-8911 (Fax)

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