Properties of the Social Discount Rate and Intertemporal Negative Externality in the Utility or Production Function - Low Carbon Economy

LCE > Vol.7 No.1, March 2016

Properties of the Social Discount Rate and Intertemporal Negative Externality in the Utility or Production Function ()

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DOI: 10.4236/lce.2016.71005 2,524 Downloads 3,363 Views Citations

Author(s)

Masayuki Otaki

Affiliation(s)

Institute of Social Sciences, The University of Tokyo, Tokyo, Japan.

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.

KEYWORDS

Utility Function with a Negative Externality, Production Function with a Negative Externality, Social Discount Rate, Efficiency in Emissions Allocation

Share and Cite:

Otaki, M. (2016) Properties of the Social Discount Rate and Intertemporal Negative Externality in the Utility or Production Function. Low Carbon Economy, 7, 47-53. doi: 10.4236/lce.2016.71005.

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