Comments on: Climate change and the decision to delay

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Comments on: Climate change and the decision to delay http://www.tvhe.co.nz/2008/04/17/climate-change-and-the-decision-to-delay/ The Visible Hand in Economics Mon, 21 Apr 2008 04:15:34 +0000 hourly 1 https://wordpress.org/?v=6.9.4 By: rauparaha http://www.tvhe.co.nz/2008/04/17/climate-change-and-the-decision-to-delay/#comment-1261 Mon, 21 Apr 2008 04:15:34 +0000 http://tvhe.wordpress.com/?p=337#comment-1261 I think the key implication of hyperbolic discounting isn’t that it isn’t optimal to delay now: it’s that, if it’s optimal to delay now, it is likely to remain optimal to delay at the future point when you plan to act. If governments had plausible precommitment mechanisms then this wouldn’t really be a problem. However, I’m not convinced that rejecting an international treaty that costs a lot of money to implement would really hurt them at the polls.

]]> By: CPW http://www.tvhe.co.nz/2008/04/17/climate-change-and-the-decision-to-delay/#comment-1260 Mon, 21 Apr 2008 03:00:40 +0000 http://tvhe.wordpress.com/?p=337#comment-1260 hmm, who knew that an “8” and a “)” was a little dude in sunnies?

]]> By: CPW http://www.tvhe.co.nz/2008/04/17/climate-change-and-the-decision-to-delay/#comment-1259 Mon, 21 Apr 2008 02:59:24 +0000 http://tvhe.wordpress.com/?p=337#comment-1259 1) I’m unhappy with the implication you seem to make with hyperbolic discounting, namely that interventions to prevent costs being delayed are welfare enhancing most of the time.
2) I don’t know if the concept is applicable to government decisions. A lot of policy decisions involve at least a pretense of cost-benefit analysis and pre-defined discount rates.
3) Even without hyperbolic discounting, one can claim that government’s lack a long-term focus because of electoral cycles. But as everyone claims that their policies have long-term benefits, I’m not certain which specific policies this claim supports.
4) Existing climate change policy already has a long lead-in time for meaningful change, with most of the sacrifices likely to occur in the future. Relative to the current policy, delaying the starting period hardly seems like much of a change.
5) Governments have commitment mechanisms – presumably it would be costly to our international reputation to exit Kyoto, and governments also care about their domestic reputation.
6) There is another argument for delay to do with the prospect of diminishing uncertainty.
7) At the end of the day, I have no idea whether delay is optimal, but with some assumptions about rate of technological change versus rate of climate change, it would be.
8) Is it valid to expect future generations to compensate us for the expanded choice set that will come from higher incomes and newer technologies?

]]> By: rauparaha http://www.tvhe.co.nz/2008/04/17/climate-change-and-the-decision-to-delay/#comment-1258 Fri, 18 Apr 2008 04:52:28 +0000 http://tvhe.wordpress.com/?p=337#comment-1258 Ah, Matt, you know it warms my heart when you say things like that 😉

The seminal psychological work on hyperbolic discounting is George Ainslie’s 1992 book, ‘Picoeconomics’, I believe. Wikipedia’s ‘Hyperbolic discounting’ article has a pretty good bibliography so you might want to check that out, cos I don’t think Picoeconomics is available online.

It became cool to use it in economics after David Laibson’s 1997 paper, ‘Golden Eggs and Hyperbolic Discounting’:
http://harbaugh.uoregon.edu/Readings/Time/Laibson%201997%20QJE,%20Golden%20eggs%20and%20hyperbolic%20discounting.pdf

For applications to procrastination check out Akerlof’s 1991 paper or the more recent work by O’Donoghue and Rabin. There’s also some application to cigarette smoking and addiction as recently written about by Gruber and Koszegi.

Most people these days don’t use hyperbolic discounting cos it’s mathematically more complex. Instead they use quasi-hyperbolic discounting, which is basically exponential discounting with an extra bit of discounting of the (t+1)th period.

]]> By: goonix http://www.tvhe.co.nz/2008/04/17/climate-change-and-the-decision-to-delay/#comment-1257 Fri, 18 Apr 2008 02:18:18 +0000 http://tvhe.wordpress.com/?p=337#comment-1257 Look on the bright side:

http://stuff.co.nz/4486484a34.html

]]> By: Matt Nolan http://www.tvhe.co.nz/2008/04/17/climate-change-and-the-decision-to-delay/#comment-1256 Fri, 18 Apr 2008 01:50:00 +0000 http://tvhe.wordpress.com/?p=337#comment-1256 “Also known as the “first mover disadvantage””

Which occurs when we have strategic complements, which implies that if there is no intervention there will be a sub-optimal value of “environmental restraint” produced 😛

Good post Rauparaha. Is it true that humans definitely use hyperbolic discounting? I haven’t read more than a couple of summary papers on it, so I’m intrigued – do you have some empirical literature on it that I may have a look at?

]]> By: goonix http://www.tvhe.co.nz/2008/04/17/climate-change-and-the-decision-to-delay/#comment-1255 Fri, 18 Apr 2008 01:40:07 +0000 http://tvhe.wordpress.com/?p=337#comment-1255 Also known as the “first mover disadvantage”.

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