Climate Policy Without Intertemporal Dictatorship: Chichilnisky Criterion Versus Classical Utilitarianism in Dice

Chichilnisky, Graciela (2017): Climate Policy Without Intertemporal Dictatorship: Chichilnisky Criterion Versus Classical Utilitarianism in Dice. Published in: (12 December 2017): pp. 1-16.

Abstract

Dynamic Integrated Climate-Economy (DICE), and compare results for different damage functions, namely the standard one in DICE and the one proposed by Weitzman implying potential large climate damages at high temperature increases. We calculate optimal climate policy for different parameter settings and compare the results with those under the green golden rule (only final utility matters) and classical utilitarianism (no discounting). Optimal emission abatement trajectories turn out to be very different between standard dis- counted utilitarianism, classical utilitarianism and Chichilnisky specifications. The results are very sensitive to the damage function, the climate sensitivity parameter and especially the “Chichilnisky weight” given to utility of generations in the far future. We discuss conditions and reasons for preferring either classical utilitarianism or the Chichilnisky criterion, and conclude that a critical factor is the time horizon used in climate policy analysis. Adopting sustainable preferences as formalized by the Chichilnisky criterion in climate policy analysis has the advantage that the very long-term implications of greenhouse gases in the atmosphere on the environment and human welfare are not downplayed.

• Item Type: MPRA Paper
• Language: English
• Keywords: Chichilnisky welfare criterion; classical utilitarianism; climate change; DICE model; Weitzman damage function.
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D71 - Social Choice ; Clubs ; Committees ; Associations; F - International Economics > F0 - General > F01 - Global Outlook; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate ; Natural Disasters and Their Management ; Global Warming

References

Ackerman, F, EA Stanton and R Bueno (2013). Epstein–Zin utility in DICE: Is risk aversion irrelevant to climate policy? Environment and Resource Economics, 56, 73–84.

Beltratti A, G Chichilnisky, GM Heal (1995). The green golden rule: valuing the long run. Economic Letters, 49, 175–179.

Botzen, WJW and JCJM van den Bergh (2012). How sensitive is Nordhaus to Weitzman? Climate policy in DICE with an alternative damage function. Economics Letters, 117, 372–374.

Botzen, WJW and JCJM van den Bergh (2014). Specifications of social welfare in economic studies of climate policy: Overview of criteria and evaluation of policy insights. Environ- mental and Resource Economics, 58(1), 1–33.

Chichilnisky, G (1996). An axiomatic approach to sustainable development. Social Choice and Welfare, 13(2), 231–257.

Estrada, F, RSJ Tol and C Gay-García (2015). The persistence of shocks in GDP and the estimation of the potential economic costs of climate change. Environmental Modelling & Software, 69, 155–165.

Hwang, C, F Reynès and RSJ Tol (2013). Climate policy under fat-tailed risk: An application of DICE. Environment and Resource Economics, 56, 415–436.

Nordhaus, WD (1991). To slow or not to slow: The economics of the greenhouse effect. The Economic Journal, 101(407), 920–937.

Nordhaus, WD (2008). A Question of Balance: Weighing the Options on Global Warming Policies. New Haven: Yale University Press.

Nordhaus, WD and J Boyer (2000). Warming the World: Economic Models of Global Warming. Cambridge, MA: The MIT Press.

Pizer, WA (1999). The optimal choice of climate change policy in the presence of uncertainty. Resource and Energy Economics, 21, 255–287.

Popp, D (2005). ENTICE: Endogenous technological change in the DICE model of global warming. Journal of Environmental Economics and Management, 48, 742–768.

Roemer, JE (2011). The ethics of intertemporal distribution in a warming planet. Environment and Resource Economics, 48, 363–390.

Stern, N (2007). The Economics of Climate Change: The Stern Review. Cambridge University Press, Cambridge.

Tol, RSJ (1999). Time discounting and optimal control of climate change: An application of FUND. Climatic Change, 41, 351–362.

Tol, RSJ (2002). Welfare specifications and optimal control of climate change: An application of fund. Energy Economics, 24, 367–376.

Tol, RSJ (2013). Climate policy with Bentham–Rawls preferences. Economics Letters, 118, 424–428.

Toman, MA, J Pezzey and J Krautkraemer (1995). Neoclassical economic growth theory and “sustainability”. In Handbook of Environmental Economics, DW Bromley (ed.). Oxford: Blackwell.

Tóth, FL (2000). Intergenerational equity and discounting. Integrated Assessment, 1, 127–139.

Weitzman, M (2012). GHG targets as insurance against catastrophic climate damages. Journal of Public Economic Theory, 14(2), 221–244.

Zuber, S and GB Asheim (2012). Justifying social discounting: The rank-discounted utilitarian approach. Journal of Economic Theory, 147(4), 1572–1601.