Positional goods, climate change and the social returns to investment

Leila Davis and Peter Skott

UMASS Amherst Economics Working Papers from University of Massachusetts Amherst, Department of Economics

Abstract: The economic analysis of global warming is dominated by models based on optimal growth theory. This approach can generate biases in the presence of positional goods and status effects. We show that by ignoring these direct consumption externalities, integrated assessment models overestimate the social return to conventional investment and underestimate the optimal amount of investment in mitigation. Empirical evidence on the influence of relative consumption on utility suggests that the bias could be quantitatively significant. Our results from a simple survey support this conclusion. JEL Categories: Q13, I3, E1

Keywords: representative agent; consumption externalities; positional goods; relative consumption; welfare; global warming; discount rates. (search for similar items in EconPapers)
Date: 2011-10
New Economics Papers: this item is included in nep-cwa, nep-ene and nep-env
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Citations: View citations in EconPapers (2)

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