Paperlink
Abstract: Uncertainty is persistent features of climate economics. Two prominent recent manifestations are an emphasis on tail risks and on Epstein-Zin (EZ) preferences. We explore both numerically in the DICE model and find that neither escapes decades-old discounting debates. The greater are climate sensitivity tail risks, the longer it takes to reach equilibrium temperatures, bringing discounting back to the fore. Similarly, our numerical EZ explorations show the importance of the elasticity of intertemporal substitution relative to risk aversion, pointing back to the crucial role of normative judgments around discounting far-distant futures. There appears to be no escaping economics’ philosophical roots.
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