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Avoiding path dependence of distributional weights: Lessons from climate change economic assessment
Örebro University School of Business.ORCID iD: 0000-0002-4209-1997
2012 (English)Report (Other academic)
Abstract [en]

 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.

Place, publisher, year, edition, pages
Örebro, 2012. , 20 p.
Series
CTS Working Paper
Keyword [en]
Economics, Climate change, Cost benefit analysis, Distribution (gen)
National Category
Economics
Research subject
SAB, Qb Managerial economics
Identifiers
URN: urn:nbn:se:vti:diva-10840OAI: oai:DiVA.org:vti-10840DiVA: diva2:952361
Note

Revised 2016

Available from: 2016-08-12 Created: 2016-08-12 Last updated: 2016-08-19Bibliographically approved
In thesis
1. Cost-Benefit Analysis of climate policy and long term public investments
Open this publication in new window or tab >>Cost-Benefit Analysis of climate policy and long term public investments
2016 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This compilation dissertation consists of four essays with the common theme of welfare analysis of long-term public investments. The first two essays focus on analysis of climate change mitigation, i.e., the social cost of carbon dioxide. The third essay focuses on cost-benefit analysis (CBA) of transport investment projects, while the last essay takes a broader perspective on welfare analysis.

Place, publisher, year, edition, pages
Örebro: Örebro university, 2016. 33 p.
Series
, Örebro Studies in Economics, ISSN 1651-8896 ; 32
Keyword
Cost benefit analysis, Investment, Climate change, Transport infrastructure
National Category
Economics
Research subject
SAB, Qa Economics and finance
Identifiers
urn:nbn:se:vti:diva-10843 (URN)978-91-7529-127-7 (ISBN)
External cooperation:
Opponent
Supervisors
Available from: 2016-08-19 Created: 2016-08-12 Last updated: 2016-09-05Bibliographically approved

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