TY - GEN AB - We study the role of alternative intertemporal preference representations in a model of economic growth, stock pollutant and endogenous risk of catastrophic collapse. We contrast the traditional “discounted utility” model, which assumes risk neutrality with respect to intertemporal utility, with a multiplicative choice model that displays risk aversion in that dimension. First, we show that both representations of preferences can rationalize the same “business as usual” economy for a given interest rate and no pollution externality. Second, once we introduce a collapse risk whose hazard rate is a function of the pollution stock, multiplicative preferences recommend a much more stringent policy response. An illustration in the context of climate change indicates that switching to the multiplicative preference representation has a similar effect, in terms of policy recommendations, as scaling up the schedule of the hazard rate by a factor of 100. AU - Bommier, Antoine AU - Lanz, Bruno AU - Zuber, Stéphane CY - Geneva DA - 2013 DA - 2013 ID - 283784 L1 - https://repository.graduateinstitute.ch/record/283784/files/CIES_RP21.pdf L1 - https://repository.graduateinstitute.ch/record/283784/files/CIES_RP21.pdf?subformat=pdfa L2 - https://repository.graduateinstitute.ch/record/283784/files/CIES_RP21.pdf L2 - https://repository.graduateinstitute.ch/record/283784/files/CIES_RP21.pdf?subformat=pdfa L4 - https://repository.graduateinstitute.ch/record/283784/files/CIES_RP21.pdf L4 - https://repository.graduateinstitute.ch/record/283784/files/CIES_RP21.pdf?subformat=pdfa LK - https://repository.graduateinstitute.ch/record/283784/files/CIES_RP21.pdf LK - https://repository.graduateinstitute.ch/record/283784/files/CIES_RP21.pdf?subformat=pdfa N2 - We study the role of alternative intertemporal preference representations in a model of economic growth, stock pollutant and endogenous risk of catastrophic collapse. We contrast the traditional “discounted utility” model, which assumes risk neutrality with respect to intertemporal utility, with a multiplicative choice model that displays risk aversion in that dimension. First, we show that both representations of preferences can rationalize the same “business as usual” economy for a given interest rate and no pollution externality. Second, once we introduce a collapse risk whose hazard rate is a function of the pollution stock, multiplicative preferences recommend a much more stringent policy response. An illustration in the context of climate change indicates that switching to the multiplicative preference representation has a similar effect, in terms of policy recommendations, as scaling up the schedule of the hazard rate by a factor of 100. PB - The Graduate Institute of International and Development Studies PP - Geneva PY - 2013 PY - 2013 T1 - Models-as-usual for unusual risks? On the value of catastrophic climate change TI - Models-as-usual for unusual risks? On the value of catastrophic climate change UR - https://repository.graduateinstitute.ch/record/283784/files/CIES_RP21.pdf UR - https://repository.graduateinstitute.ch/record/283784/files/CIES_RP21.pdf?subformat=pdfa Y1 - 2013 ER -