Abstract

In this paper we study the optimal conversion policy set by a society composed of a sequence of non-overlapping imperfectly altruistic generations. We show that society can be equivalently viewed as a sequence of hyperbolic discounting agents. Under uncertainty about future pay-offs we determine, as solution to an intergenerational non-cooperative dynamic game, the optimal timing of irreversible conversion. We show that under both naive and sophisticated beliefs about future time-inconsistency, the option value attached to the conversion decision is eroded and earlier conversion occurs. This determines a drastic bias toward the current generation gratification, which affects the intergenerational allocation of benefits and costs from deforestation.

Keywords

Real options; Intergenerational imperfect altruism; Hyperbolic discounting; Timing game.

Published in

Journal of Forest Economics
2012, Volume: 18, number: 3, pages: 194-206
Publisher: Elsevier

SLU Authors

• Di Corato, Luca

  • Department of Economics, Swedish University of Agricultural Sciences
    

Sustainable Development Goals

Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss


UKÄ Subject classification

Economics


Publication identifier

DOI: https://doi.org/10.1016/j.jfe.2012.02.002

Permanent link to this page (URI)

https://res.slu.se/id/publ/39511