Modelling preferences in economics

Thesis

This thesis considers the economics of preferences in two different contexts.

First it examines damages from climate change. I argue that our ignorance of the welfare implications of higher levels of warming, as well as scientific uncertainty in precisely what might trigger these scenarios, imply that our tastes and beliefs are incomplete (in the sense of Galaabaatar and Karni, 2013). That is, there are many 'plausible' ways to evaluate a given scenario.

In Chapter 1, then, I develop this theory, and use it to formally separate climate impacts into three sorts: those understood well, those understood badly, and those representing the worst possible scenario. I provide a generalisation of the 'dismal theorem' of Weitzman (2009a), and address the question of policy choice: prices versus quantities (cf. Weitzman, 1974).

Chapter 2 is an example of the analysis propounded in Chapter 1. I explore the sensitivity of the social cost of carbon to assumed damages from 4C warming, to the assumed extent of CO2 emissions, and to the modelling of the climate and carbon cycles. The analysis shows that differing prior assumptions can alter our evaluation of policy by orders of magnitude.

The second part of this thesis regards preferences for indivisible goods. In Chapter 3, which is joint work with Paul Klemperer, I introduce to this field the 'tropical hypersurface', being those prices at which an agent's demand changes. Simple geometric features of this set tell us the precise trade-offs that interest the agent. Thus we develop a new taxonomy of valuations, `demand types'; familiar notions such as substitutes and complements are examples. Finally, we provide a necessary and sufficient condition on these `demand types' for existence of competitive equilibrium, which implies several existing results, as well as new and quite different examples.

Authors: Baldwin, E

• Type of award: DPhil
• Level of award: Doctoral
• Awarding institution: University of Oxford
• Language: English
• Keywords: Knightian uncertainty; duality; auction; Catastrophes; competitive equilibrium; indivisible goods; product-mix auction; Incomplete preferences; Social cost of carbon; convex geometry; complements; Policy choice; tropical geometry; substitutes; Climate change
• Subjects: Environmental Economics; Economic Theory; Economics