Now or Never: Environmental Protection Under Hyperbolic Discounting

CER - ETH - Center of Economic Research at ETH Zurich, Working Paper No. 06/60

26 Pages Posted: 30 Nov 2006 Last revised: 8 Apr 2009

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: October 2006

Abstract

In this paper, we extend the well known result that hyperbolically discounting agents tend to postpone costs into the future. In a simple model we show that, without commitment to the ex ante optimal plan, no investment in environmental protection is undertaken over the whole time horizon, no matter whether the decision makers are naive or sophisticated, although investment seems optimal in the long run from every generations point of view. This result questions the application of hyperbolic discounting in cost-benefit analysis and gives rise to concern, as it is consistent with unsatisfactory policy performance in solving long-term environmental problems.

Keywords: Environmental policy, Environmental protection, Hyperbolic discounting, Intertemporal decision theory, Procrastination, Time-(in)consistency

JEL Classification: Q53, D90, D61

Suggested Citation

Winkler, Ralph, Now or Never: Environmental Protection Under Hyperbolic Discounting (October 2006). CER - ETH - Center of Economic Research at ETH Zurich, Working Paper No. 06/60. Available at SSRN: https://ssrn.com/abstract=948149 or http://dx.doi.org/10.2139/ssrn.948149

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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