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Spaces for agreement: a theory of time-stochastic dominance and an application to climate change

Dietz, Simon ORCID: 0000-0001-5002-018X and Matei, Nicoleta Anca (2016) Spaces for agreement: a theory of time-stochastic dominance and an application to climate change. Journal of the Association of Environmental and Resource Economists, 3 (1). 85 - 130. ISSN 2333-5955

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Identification Number: 10.1086/683684


Many investments involve both a long time-horizon and risky returns. Making investment decisions thus requires assumptions about time and risk preferences. Such assumptions are frequently contested, particularly in the public sector, and there is no immediate prospect of universal agreement. Motivated by these observations, we develop a theory and method of finding ‘spaces for agreement’. These are combinations of classes of discount and utility function, for which one investment dominates another (or ‘almost’ does so), so that all decision-makers whose preferences can be represented by such combinations would agree on the option to be chosen. The theory is built on combining the insights of stochastic dominance on the one hand, and time dominance on the other, thus offering a nonparametric approach to inter-temporal, risky choice. We go on to apply the theory to the controversy over climate policy evaluation and show with the help of a popular simulation model that, in fact, even tough carbon emissions targets would be chosen by almost everyone, barring those with arguably ‘extreme’ preferences.

Item Type: Article
Official URL:
Additional Information: © 2016 Association of Environmental and Resource Economists
Divisions: Grantham Research Institute
Subjects: G Geography. Anthropology. Recreation > GE Environmental Sciences
H Social Sciences > HB Economic Theory
JEL classification: D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency; Cost-Benefit Analysis
H - Public Economics > H4 - Publicly Provided Goods > H43 - Project Evaluation; Social Discount Rate
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate; Natural Disasters
Date Deposited: 27 Oct 2015 15:31
Last Modified: 16 May 2024 02:13
Projects: ES/K006576/1, ES/K006576/1
Funders: Economic and Social Research Council, Economic and Social Research Council

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