Discounting Disentangled: An Expert Survey on the Determinants of the Long-Term Social Discount Rate

Abstract

Centre for Climate Change Economics and Policy Working Paper No. 195 Grantham Research Institute on Climate Change and the Environment Working Paper No. 172 The Centre for Climate Change Economics and Policy (CCCEP) was established by the University of Leeds and the London School of Economics and Political Science in 2008 to advance public and private action on climate change through innovative, rigorous research. The Centre is funded by the UK Economic and Social Research Council. Its second phase started in 2013 and there are five integrated research themes: 1. Understanding green growth and climate-compatible development 2. Advancing climate finance and investment 3. Evaluating the performance of climate policies 4. Managing climate risks and uncertainties and strengthening climate services 5. Enabling rapid transitions in mitigation and adaptation More information about the Centre for Climate Change Economics and Policy can be found at: http://www.cccep.ac.uk. The Grantham Research Institute on Climate Change and the Environment was established by the London School of Economics and Political Science in 2008 to bring together international expertise on economics, finance, geography, the environment, international development and political economy to create a worldleading centre for policy-relevant research and training. The Institute is funded by the Grantham Foundation for the Protection of the Environment and the Global Green Growth Institute. It has nine research programmes: 1. Adaptation and development 2. Carbon trading and finance 3. Ecosystems, resources and the natural environment 4. Energy, technology and trade 5. Future generations and social justice 6. Growth and the economy 7. International environmental negotiations 8. Modelling and decision making 9. Private sector adaptation, risk and insurance More information about the Grantham Research Institute on Climate Change and the Environment can be found at: http://www.lse.ac.uk/grantham.This working paper is intended to stimulate discussion within the research community and among users of research, and its content may have been submitted for publication in academic journals. It has been reviewed by at least one internal referee before publication. The views expressed in this paper represent those of the author(s) and do not necessarily represent those of the host institutions or funders.

Does the Adverse Announcement Effect of Climate Policy Matter? - A Dynamic General Equilibrium Analysis

“…For the growth rate of the economy, which can be calibrated by adapting the growth rate of effective laborÊ, we use the upper bound value reported in Nakicenovic and Swart (2000), g = 0.037 1/a. In most cases, these value choices are within the ranges reported in Drupp et al (2015).…”

How certain are we about the certainty-equivalent long term social discount rate?

“…In one strand, x is interpreted as the average long-term risk-free rate of interest, for another it is the Social Rate of Time Preference (SRTP) from the standard Ramsey model, SRT P = + g, where is the pure rate of time preference, is the elasticity of marginal utility; and g is the real growth of per capita consumption. Given these di¤erent possibilities, the data on x could be elicited from survey responses, as in Weitzman (2001) and Drupp et al (2015). Alternatively it might be derived from revealed preference, such as in Groom and Maddison (2013) for .…”

“…Furthermore, a recent survey by Drupp et al (2015) reports a very di¤erent spread of expert views on the SDR to Weitzman (2001).…”

“…9 Drupp et al (2015) provides a lengthy discussion of the underlying reasons why experts give con ‡icting advice on R H , and presents detailed evidence concerning the spread of opinions on each of these matters.…”

Hyperbolic Discounting and the Time-Consistent Solution of Three Canonical Environmental Problems

“…In a setting where the elasticity of intertemporal substitution is assumed to be constant and the economy is at its steady state or there is no long-run growth (as in the context of the present paper), a declining rate of time preference is the only way to generate a declining SDR. Drupp et al (2015) extend the Weitzman (2001) approach by collecting expert assessments of the individual components of the SDR and report disagreement on the rate of pure rate of time preference. Applying Weitzman's (2001) aggregation, this finding implies in the aggregate a declining rate of pure time preference.…”