Endogenous Discounting and Climate Policy

Yacov Tsur, Amos Zemel

Research output: Contribution to journalArticlepeer-review

29 Scopus citations


Under risk of abrupt climate change, the occurrence hazard is added to the social discount rate. As a result, the social discount rate (1) increases and (2) turns endogenous to the global warming policy. The second effect bears profound policy implications that are magnified by economic growth. In particular, we find that greenhouse gases (GHG) emission should be terminated at a finite time so that the ensuing occurrence risk will vanish in the long run. Due to the public bad nature of the catastrophic risk, the second effect is ignored in a competitive allocation and unregulated economic growth will give rise to excessive emissions. In the long term, the GHG emission paths under the optimal and competitive growth regimes lie at the extreme ends of the range of feasible emissions.

Original languageEnglish
Pages (from-to)507-520
Number of pages14
JournalEnvironmental and Resource Economics
Issue number4
StatePublished - 1 Jan 2009


  • Abrupt climate change
  • Discounting
  • Economic growth
  • Emission policy
  • Hazard rate

ASJC Scopus subject areas

  • Economics and Econometrics
  • Management, Monitoring, Policy and Law


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