Global Warming and Economic Externalities

Armon Rezai, Duncan Foley and Lance Taylor

A chapter in The Economics of the Global Environment, 2016, pp 447-470 from Springer

Abstract: Abstract Despite worldwide policy efforts such as the Kyoto Protocol, the emission of greenhouse gases (GHG) remains a negative externality. Economic equilibrium paths in the presence of such an uncorrected externality are inefficient; as a consequence there is no real economic opportunity cost to correcting this externality by mitigating global warming. Mitigation investment using resources diverted from conventional investments can raise the economic well-being of both current and future generations. The economic literature on GHG emissions misleadingly focuses attention on the intergenerational equity aspects of mitigation by using a hybrid constrained optimal path as the “business-as-usual” benchmark. We calibrate a simple Keynes-Ramsey growth model to illustrate the significant potential Pareto-improvement from mitigation investment, and to explain the equilibrium concept appropriate to modeling an uncorrected negative externality.

Keywords: Global warming; Growth with negative externalities; Optimal economic growth; D62; O41; Q54 (search for similar items in EconPapers)
Date: 2016
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Journal Article: Global warming and economic externalities (2012)
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DOI: 10.1007/978-3-319-31943-8_20

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