Journal Article
No. 2009-12 |
April 09, 2009
Now or Never: Environmental Protection under Hyperbolic Discounting
(Published in Discounting the Long-Run Future and Sustainable Development)
Abstract
The author analyzes the optimal investment in environmental protection in a model of non-overlapping hyperbolically discounting agents. He shows that, in the long run and in the absence of a commitment device, society is stuck in a situation where all agents prefer further investments, yet no agent invests. This holds no matter whether agents are aware of the time inconsistency of their preferences. As a consequence, awareness of the time-inconsistency problem poses at best a short run remedy. Moreover, such an outcome may be Pareto inefficient and may explain the weak performance of long-run environmental policies.