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Risk, inequality and time in the welfare economics of climate change: is the workhorse model underspecified?

Abstract:

In the workhorse model of welfare economics, the elasticity of marginal utility, often denoted as η, serves simultaneously to represent aversion to risk, aversion to spatial inequality, and preferences for intertemporal substitution. While Kreps-Porteus-Selden and Epstein-Zin preferences enable risk to be separated from intertemporal substitution, no model enables all tlhree concepts to be disentangled. This theoretical lacuna is important, particularly for the economics of climate...

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Publication status:
Published

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Publisher:
University of Oxford Publisher's website
Series:
Department of Economics Discussion Paper Series
Publication date:
2008-07-01
Paper number:
400

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