Distorted Time Preferences and Structural Change in the by Christoph Heinzel

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By Christoph Heinzel

This learn contributes to the industrial discounting debate through studying the welfare and coverage implications of distorted time personal tastes for personal investments. The research is utilized to the power undefined, the place it truly is of specific value. within the transition to low-carbon power new release, distorted time personal tastes are proven to urge a different distortion, as well as that from the emission externality. Its quantity varies without delay with the time lag in capital accumulation. that allows you to enforce the socially optimum direction, environmental coverage should be complemented through know-how coverage. The theoretical findings are utilized to the impending structural switch within the German electrical energy within the 2010s.

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This sure benefit increases the certainty equivalent consumption in t = 1 by ∂m ∂x x=0 = Ev (c1 ) (1 + r) . 25) where δ1 is the social rate of time preference in period 1, here equivalent to socially efficient discount rate, corresponding to the equilibrium risk-free rate in this exchange economy. Gollier now compares δ1 and δ1c , the socially optimal discount rate in an economy with a sure consumption level equal to Ec1 in t = 1. 1 Social versus Private Time Preferences δ1c = 25 u (c) −1 . 26) for time-separable expected utility preferences with u ≡ v follows: δ1 ≤ δ1c ⇔ Ev (c1 ) ≥ v (Ec1 ) .

That is, as compared to other private investment projects, their construction necessitates a particularly large reallocation of resources from other opportunities in the economy, which, of course, will only be made if it seems economically profitable. Therefore, the current conditions of investment and replacement are instrumental to determine whether and when structural change will occur. Second, the construction period of a new power plant is often particularly long as compared to other investment projects.

1 Social versus Private Time Preferences 27 constitutes another case for welfare-enhancing government intervention. Therefore, Gollier’s analysis implies another second-best case relevant for the present analysis. 3 Summary and Treatment of the Assumption in the Model This subsection summarises the findings from the analysis of the discounting literature, states open issues, and then describes the treatment of the assumption in the model below and the contribution of the analysis. 1 Summary of the Findings from the Analysis of Discounting Literature In this section, as a benchmark for the further discussion, first, the first-best case was restated with reference to Ramsey’s (1928) basic model.

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