Entitlements, missing markets, and environmental uncertainty

Abstract

Intertemporal externalities are characterized by missing markets in which future generations are unable to enter bids to have their interests protected. The interests of the future are only protected by an entitlement structure that gives present generations a duty to consider the interests of the future. Future generations thus obtain a correlated right. Under this alternative entitlement structure a broader economic analysis can be conducted to reveal dominant solutions missing from the usual partial equilibrium approach. Prospect theory suggests that decision makers will not behave as predicted by expected utility theory, and explicit recognition of presumed entitlements reinforces this observation.