Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/244482 
Authors: 
Year of Publication: 
2016
Series/Report no.: 
Working Paper No. 8/2012
Publisher: 
Örebro University School of Business, Örebro
Abstract: 
In some cost benefit analysis (CBA) applications, such as those used for the valuation of climate change damage, distributional weights are used to account for diminishing utility of marginal income. This is usually done by means of intra-temporal distributional weights, which are combined with discounting to account for inter-temporal equity and efficiency. Here, I show that this approach might introduce some inconsistencies in terms of path dependence. In short, this inconsistency means that regional economic growth is double counted. This is because income weighting is performed both through the discount rate and through the distributional weights such that growth shows up twice in the weighting process. Using the PAGE2002 model, it is found that the inconsistency problem in the original model erases the influence of distributional weights on the social cost of carbon dioxide (SCCO2) compared to a standard CBA approach. The alternative approaches proposed here yield about 20%–40% higher values of SCCO2 than the old approach. While this has been briefly commented on in previous work, it has not yet been more thoroughly analyzed nor communicated to the broader community of climate policy and economic analysts who are not deeply interested in the specifications of the climate impact assessment models.
Subjects: 
Distributional weights
Equity weights
Discounting
Cost benefit analysis
Marginal utility
Integrated assessment model
PAGE2002
Social cost of carbon
Climate change
JEL: 
C69
H23
H43
Q54
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.