No. 2016-04 - Climate policy when preferences are endogenous – and sometimes they are
Date: 18 July 2016Policy can change people’s preferences. For example, how cities are designed has an impact on future preferences about modes of trans- port, even after people move. We examine the normative significance of such preference formation for climate policy design, in which such effects are commonly ignored. Yet, on the long time scales that cli- mate policy must consider, it is likely to change preferences. We argue that this is of high relevance for the adequate evaluation of mitigation options. We further argue that the orthodox approach of addressing environmental concerns with marginal pricing and Pigouvian taxes is missing a key element. Policies that change preferences can influence the cost of carbon mitigation, and hence change the optimal carbon tax rate. As an attempt to assist in policy making with endogenous prefer- ences, we examine alternatives to preference satisfaction for normative economics.
Climate policy when preferences are endogenous – and sometimes they are
Type: inet-working-paperView Document