TITLE:
Properties of the Social Discount Rate and Intertemporal Negative Externality in the Utility or Production Function
AUTHORS:
Masayuki Otaki
KEYWORDS:
Utility Function with a Negative Externality, Production Function with a Negative Externality, Social Discount Rate, Efficiency in Emissions Allocation
JOURNAL NAME:
Low Carbon Economy,
Vol.7 No.1,
March
17,
2016
ABSTRACT: This study examines the role of the social discount rate, as applied to
the efficient allocation of carbon dioxide (CO2) emissions, which
provokes serious intertemporal negative externalities such as global warming.
Two approaches exist in introducing the intertemporal negative externality
brought about by such emissions into economic theory. One is the
utility-function approach, and the other is the production-function approach.
The former is well-suited to the case in which climate change directly
threatens the living standard of human, for example, through a drastic degradation
of the environment. The latter approach becomes relevant to case in which
global warming is expected to lead to productivity stagnation particular to the
additional costs of adaptation.