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Abstract

Time perspective – the tendency to foreshorten time units as we peer further into the future – implies hyperbolic discounting. We study implications of hyperbolic discounting for climate change policy, using a model in which the probability of a climate-induced catastrophe depends on the stock of greenhouse gasses (GHG). We characterize the set of Markov perfect equilibria of the intergenerational game in which each generation can either do nothing or stabilize atmospheric GHG concentration, and compare this set to a “restricted commitment” benchmark. We calculate the associated “constant equivalent discount rates” and the corresponding levels of expenditure to control climate change, and compare these results to discounting assumptions and policy recommendations in the Stern Review on Climate Change.

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