Non-Cooperative and Cooperative Responses to Climate Catastrophes in the Global Economy: A North-South Perspective

Frederick (Rick) van der Ploeg and Aart de Zeeuw

No 10870, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The optimal response to a potential productivity shock which becomes more imminent with global warming is to have carbon taxes to curb the risk of a calamity and to accumulate precautionary capital to facilitate smoothing of consumption. This paper investigates how differences between regions in terms of their vulnerability to climate change and their stage of development affect the cooperative and non-cooperative responses to this aspect of climate change. It is shown that the cooperative response to these stochastic tipping points requires converging carbon taxes for developing and developed regions. The non-cooperative response leads to a bit more precautionary saving and diverging carbon taxes. We illustrate the various outcomes with a simple stylized North-South model of the global economy.

Keywords: Global warming; Tipping point; Precautionary capital; Growth; Risk avoidance; Carbon tax; Free riding; International cooperation; Asymmetries (search for similar items in EconPapers)
JEL-codes: D81 H20 O40 Q31 Q38 (search for similar items in EconPapers)
Date: 2015-10
New Economics Papers: this item is included in nep-ene and nep-env
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Related works:
Journal Article: Non-cooperative and Cooperative Responses to Climate Catastrophes in the Global Economy: A North–South Perspective (2016)
Working Paper: Non-Cooperative and Cooperative Responses to Climate Catastrophes in the Global Economy: A North-South Perspective (2014)
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