Heterogeneous Patience, Bargaining Power and Investment in Future Public Goods

In many environmental contexts, including climate change mitigation, agents face investment opportunities that have shared, but greatly delayed benefits. Efficient levels of aggregate investment therefore require collective action, but they are also highly sensitive to the choice of discount rate. Motivated by empirical evidence that suggests discount rates vary considerably, this paper investigates the impact of heterogeneity in discount rates on sharing of investment costs. An application of the canonical bargaining model shows that the larger share of the costs gradually shifts from impatient to patient agents as the time horizon increases.