Endogenous Social Discount Rate, Proportional Carbon Tax, and Sustainability
Date of This Version
July 2011
Abstract
Whether discounting the utility of future generations can pose a very serious problem in that future generations will never possess the opportunity to express their preference concerning the current resource allocation, which will ultimately affect their utility. In this paper, we tackle the abovementioned problem in the context of global warming, which is crucially connected with the emission and accumulation of $CO_2$. We analyze how the social optimum is attained under the constraint of sustainability proposed by Pezzey (1997). We find the following relationship between the optimal policies: the condition that utility should not be discounted attains the optimal allocation in social planning. And it corresponds to adopting the socially optimal carbon tax rate in a decentralized economy.
Recommended Citation
Otaki, Masayuki, "Endogenous Social Discount Rate, Proportional Carbon Tax, and Sustainability" (July 28, 2011). Fondazione Eni Enrico Mattei Working Papers. Paper 924.
https://services.bepress.com/feem/paper924