Agreeing to disagree on climate policy

Disagreements about the value of the utility discount rate—the rate at which our concern for the welfare of future people declines with their distance from us in time—are at the heart of the debate about the appropriate intensity of climate policy. Seemingly small differences in the discount rate yield very different policy prescriptions, and no consensus “correct” value has been identified. We argue that the choice of discount rate is an ethical primitive: there are many different legitimate opinions as to its value, and none should receive a privileged place in economic analysis of climate policy. Rather, we advocate a social choice-based approach in which a diverse set of individual discount rates is aggregated into a “representative” rate. We show that performing this aggregation efficiently leads to a time-dependent discount rate that declines monotonically to the lowest rate in the population. We apply this discounting scheme to calculations of the social cost of carbon recently performed by the US government and show that it provides an attractive compromise between competing ethical positions, and thus provides a possible resolution to the ethical impasse in climate change economics

Beliefs, politics, and environmental policy

Experts and the general public often perceive environmental problems differently. Moreover, regulatory responses to environmental issues often do not coincide with consensus expert recommendations. These two facts are mutually consistent – it is unlikely that regulations based on factual claims that are substantially different from voters’ opinions would be politically feasible. Given that the public’s beliefs constrain policy choices, it is vital to understand how beliefs are formed, whether they will be biased, and how the inevitable heterogeneity in people’s beliefs filters through the political system to affect policy. We review recent theoretical and empirical work on individual inference, social learning, and the supply of information by the media, and identify the potential for biased beliefs to arise. We then examine the interaction between beliefs and politics: can national elections and legislative votes be expected to result in unbiased collective decisions, do heterogeneous beliefs induce strategic political actors to alter their policy choices, and how do experts and lobby groups affect the information available to policy-makers? We conclude by suggesting that the relationship between beliefs and policy choices is a relatively neglected aspect of the theory of environmental regulation, and a fruitful area for further research

Policy experimentation, political competition, and heterogeneous beliefs

International audienceWe consider a two period model in which an incumbent political party chooses the level of a current policy variable unilaterally, but faces competition from a political opponent in the future. Both parties care about voters' payoffs, but they have different beliefs about how policy choices will map into future economic outcomes. We show that when the incumbent party can endogenously influence whether learning occurs through its policy choices (policy experimentation), future political competition gives it a new incentive to distort its policies — it manipulates them so as to reduce uncertainty and disagreement in the future, thus avoiding facing competitive elections with an opponent very different from itself. The model thus demonstrates that all incumbents can find it optimal to ‘over experiment’, relative to a counterfactual in which they are sure to be in power in both periods. We thus identify an incentive for strategic policy manipulation that does not depend on parties having conflicting objectives, but rather stems from their differing beliefs about the consequences of their actions

Model confirmation in climate economics

Benefit–cost integrated assessment models (BC-IAMs) inform climate policy debates by quantifying the trade-offs between alternative greenhouse gas abatement options. They achieve this by coupling simplified models of the climate system to models of the global economy and the costs and benefits of climate policy. Although these models have provided valuable qualitative insights into the sensitivity of policy trade-offs to different ethical and empirical assumptions, they are increasingly being used to inform the selection of policies in the real world. To the extent that BC-IAMs are used as inputs to policy selection, our confidence in their quantitative outputs must depend on the empirical validity of their modeling assumptions. We have a degree of confidence in climate models both because they have been tested on historical data in hindcasting experiments and because the physical principles they are based on have been empirically confirmed in closely related applications. By contrast, the economic components of BC-IAMs often rely on untestable scenarios, or on structural models that are comparatively untested on relevant time scales. Where possible, an approach to model confirmation similar to that used in climate science could help to build confidence in the economic components of BC-IAMs, or focus attention on which components might need refinement for policy applications. We illustrate the potential benefits of model confirmation exercises by performing a long-run hindcasting experiment with one of the leading BC-IAMs. We show that its model of long-run economic growth—one of its most important economic components—had questionable predictive power over the 20th century

Ambiguity and Climate Policy

Economic evaluation of climate policy traditionally treats uncertainty by appealing to expected utility theory. Yet our knowledge of the impacts of climate change may not be of sufficient quality to justify probabilistic beliefs. In such circumstances it has been argued that the axioms of expected utility theory may not be the the correct standard of rationality. By contrast several recently-proposed axiomatic frameworks account for ambiguous beliefs. We follow this approach and apply static and dynamic versions of a smooth ambiguity model to climate policy, obtaining general results on the comparative statics of optimal abatement and ambiguity aversion and illustrating this sufficient condition in some simple examples. Greater ambiguity aversion may lead to more or less abatement depending on the details of the model. We then extend our analysis to a dynamic setting and adopt a well-known integrated assessment model to show that the value of emissions abatement increases as ambiguity aversion increases, and that this "ambiguity premium" can in some plausible cases be very large.

Time consistency and time invariance in collective intertemporal choice

Recent work on collective intertemporal choice suggests that non-dictatorial social preferences are generically time inconsistent. We argue that this claim conflates time consistency with two distinct properties of preferences: stationarity and time invariance. While time invariance and stationarity together imply time consistency, the converse does not hold. Although non-dictatorial social preferences cannot be stationary, they may be time consistent if time invariance is abandoned. If individuals are discounted utilitarians, revealed preference provides no guidance on whether social preferences should be time consistent or time invariant. Nevertheless, we argue that time invariant social preferences are often normatively and descriptively problematic

Discounting by committee

We study a dynamic social choice problem in which a sequence of committees must decide how to consume a public asset. A committee convened at time t decides on consumption at t, accounting for the behaviour of future committees. Committee members disagree about the appropriate value of the pure rate of time preference, but must nevertheless reach a decision. If each committee aggregates its members' preferences in a utilitarian manner, the collective preferences of successive committees will be time inconsistent, and they will implement inefficient consumption plans. If however committees decide on the level of consumption by a majoritarian vote in each period, they may improve on the consumption plans implemented by utilitarian committees. Using a simple model, we show that this occurs in empirically plausible cases. Application to the problem of choosing the social discount rate is discussed

Transmogrifying Fuzzy Vortices

We show that the construction of vortex solitons of the noncommutative Abelian-Higgs model can be extended to a critically coupled gauged linear sigma model with Fayet-Illiopolous D-terms. Like its commutative counterpart, this fuzzy linear sigma model has a rich spectrum of BPS solutions. We offer an explicit construction of the degree$-k$ static semilocal vortex and study in some detail the infinite coupling limit in which it descends to a degree$-k$ \C\Pk^{N} instanton. This relation between the fuzzy vortex and noncommutative lump is used to suggest an interpretation of the noncommutative sigma model soliton as tilted D-strings stretched between an NS5-brane and a stack of D3-branes in type IIB superstring theory.Comment: 21 pages, 4 figures, LaTeX(JHEP3

Climate engineering reconsidered

Stratospheric injection of sulphate aerosols has been advocated as an emergency geoengineering measure to tackle dangerous climate change, or as a stop-gap until atmospheric carbon dioxide levels are reduced. But it may not prove to be the game-changer that some imagine

Ambiguity and climate policy

Economic evaluation of climate policy traditionally treats uncertainty by appealing to expected utility theory. Yet our knowledge of the impacts of climate policy may not be of sufficient quality to justify probabilistic beliefs. In such circumstances, it has been argued that the axioms of expected utility theory may not be the correct standard of rationality. By contrast, several axiomatic frameworks have recently been proposed that account for ambiguous beliefs. In this paper, we apply static and dynamic versions of a smooth ambiguity model to climate mitigation policy. We obtain a general result on the comparative statics of optimal abatement and ambiguity aversion and illustrate this sufficient condition in some simple examples. We then extend our analysis to a more realistic, dynamic setting, and adapt a well-known empirical model of the climate-economy system to show that the value of emissions abatement increases as ambiguity aversion increases, and that this ‘ambiguity premium’ can in some plausible cases be very large