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  -