The Social Discount Rate under Intertemporal Risk Aversion and Ambiguity

The social discount rate crucially determines optimal mitigation policies. This paper examines two shortcomings of the recent debate and the models on climate change assessment. First, removing an implicit assumption of (intertemporal) risk neutrality reduces the growth effect in social discounting and significantly amplifies the importance of risk and correlation. Second, debate and models largely overlook the difference in attitude with respect to risk and with respect to non-risk uncertainty. The paper derives the resulting changes of the risk-free and the stochastic social discount rate and points out the importance of even thin tailed uncertainty for climate change evaluation.


Issue Date:
2009-12
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/55785
Total Pages:
40
JEL Codes:
D61; D81; D90; H43; Q00; Q54
Series Statement:
CUDARE Working Paper
1092




 Record created 2017-04-01, last modified 2017-08-25

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