IF lecture notes

A formula used to calculate the present value of future consumption, considering a discount rate (beta) that reflects the value we place on future consumption compared to present consumption.

A value between 0 and 1 that reflects our preference for present consumption over future consumption. A higher beta means we value future consumption more.

A concept in economics where we consider an infinitely long time period, allowing us to analyze long-term consequences of decisions.

A stable condition where economic factors like consumption levels remain constant over time.

Two policies that provide the same level of overall welfare, even though their consumption patterns differ over time.

A rate used to determine the present value of future benefits or costs. It reflects how much we value future outcomes compared to present ones.

A method of discounting future values where the discount rate is applied exponentially over time. This means that the value of future outcomes declines rapidly as time increases.

Distributing resources over time in a way that maximizes overall well-being, considering the value of future generations.

The period of time considered for decision-making, such as planning for future generations or evaluating long-term projects.

The uneven distribution of resources, opportunities, and well-being across individuals or groups within a society.

A mathematical representation of how society values different outcomes, often used to guide policy-making.

A series of consumption levels over time, representing the flow of resources available to each generation. As improvements occur, consumption streams should ideally go up, implying that more is better for future generations.

The principle that small changes in the present should not significantly impact future outcomes. If a small adjustment is made to current consumption, future generations should not experience a drastic change in their consumption levels.

Two approaches to evaluating options. Ranking allows for a range of values (good to bad), while choosing makes a simple binary decision. Ranking is more complex but provides richer information.

The concept of distributing resources equally and ensuring enough for everyone. It's impossible to achieve both perfectly when considering an unlimited number of future generations.

The idea that consumption in the future is valued less than consumption today. This is often used to address the challenge of infinite generations, as we may prioritize the well-being of the current generation over future generations.

A rate that determines how much less valuable future consumption is compared to present consumption. For example, an SDR of 10% means that consumption in one year is 10% less valuable than consumption today.

The effects of climate change that are not reflected in individual costs. Even if people care about future generations, addressing climate change requires public intervention due to its global impact and individual actions being insufficient.

The practice of valuing future benefits and costs less than present ones. It's based on the idea that we may value our own well-being more than future generations.

A principle that states that if a change in consumption patterns improves social welfare, then any change that returns to the initial consumption pattern should not worsen social welfare.

The idea that decisions made in the present should not affect the choices available to future generations. Future choices should be independent of past actions.

Risk involves known probabilities of potential outcomes, while uncertainty involves unknown probabilities.

A strategy for decision-making under uncertainty that focuses on minimizing the worst possible outcome.

A philosophy that emphasizes maximizing overall happiness, even if there are risks involved.

The challenge of balancing individuals' preferences for risk with the consequences of those choices for future generations.

International Environmental Agreements are agreements between countries aimed at addressing environmental problems. They are designed to encourage collaboration on issues like climate change, pollution, and biodiversity conservation.

A critical challenge in IEAs is ensuring all countries participate and comply with the agreed-upon actions. Some countries might try to benefit from others' efforts without contributing, leading to a lack of collective progress.

Tackling climate change requires long-term commitments, often decades, which presents difficulties for IEAs. It's challenging to agree on actions with lasting impact and ensure cooperation over such a long period.

IEAs often require substantial investments in new technologies and infrastructure to achieve environmental goals. It takes time to develop and implement these changes, potentially hindering progress.

Ensuring that countries follow through on their commitments within IEAs can be difficult. It's challenging to monitor and verify actions, especially when agreements involve complex environmental issues.

A situation where a country benefits from the efforts of others to reduce environmental damage without contributing significantly themselves, leading to a lack of collective progress.

IEAs fall into two categories: strict agreements with precise targets and penalties for non-compliance, and soft agreements with less concrete goals and less enforcement.

A theoretical framework used to analyze the strategic interactions between countries in international agreements. It helps understand how countries make decisions based on their own self-interest and how this can lead to cooperation or conflict.

The Gini coefficient fails to capture the impact of zero income on inequality. It treats two distributions with the same overall inequality as equal, even if one has individuals with zero income and the other does not.

Relative inequality measures how income gaps change over time, while absolute inequality focuses on the overall range of incomes. Absolute inequality can decrease while relative inequality increases, indicating that the gap between the rich and poor is widening even though poverty is declining overall.

Inequality affects how we address societal differences. It impacts the distribution of resources and opportunities, influencing the well-being of individuals and the overall functioning of society.

In economics, sometimes increasing efficiency (making things work better) can lead to more inequality. The decision to prioritize one over the other involves balancing economic productivity with equitable distribution of benefits.

Indifference curves show combinations of income distribution that yield the same level of societal inequality. They help visualize how different distributions are perceived as equally fair or unfair.

The relationship between discounting future outcomes and inequality is complex and not yet fully understood. It raises ethical questions about prioritizing present gains over future well-being, especially for those who are already disadvantaged.

There is no one perfect solution or optimal choice when dealing with inequality. Different ethical perspectives and societal values influence the prioritization of equity and efficiency, making it a challenging and often controversial topic.