Foundations of the Theoretical Analysis

Part of the Sustainability and Innovation book series (SUSTAINABILITY)

In this part of the study a theoretical model is developed to study the transition from an established polluting to a new clean energy technology. The model encompasses two distinctive features. First, the social rate of time preference is assumed to stay below the private. Second, the creation of new productive capital is supposed to exhibit a time-to-build property. This chapter introduces to the theoretical issue of this study and describes its relationship and contribution to the two respective strands of literature. Section 2.1 discusses the crucial assumption of the split of social and private time-preference rates as treated in the economic discounting debate thus far, states open issues and finally justifies the treatment of the assumption in the subsequent model analysis. Section 2.2 motivates the taking up of the modeling framework of time-lagged capital theory and shows how it is further developed in this study. Section 2.3 explains the analytical structure of the model developed in chapter 3.


Discount Rate Time Preference Social Rate Idiosyncratic Risk Private Rate 


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© Springer-Verlag Berlin Heidelberg 2009

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