Asset prices and climate policy
Larry Karp and
Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley
Currently living people might reduce carbon emissions to protect themselves, their wealth, or future generations from climate damage. An overlapping generations climate model with endogenous asset priceand investment levels disentangles these incentives. Asset markets capitalize the future eÂ¤ects of policy, regardless of peopleÂ’s concern for future generations. These markets can lead self-interested agents to undertake signiÂ…cant abatement. A small climate policy that raises the price of capital increases welfare of old agents and also increases welfare of young agents with a high intertemporal elasticity of sub-stitution. Climate policy can also have subtle distributional eÂ¤ects across the currently living generations.
Keywords: Social and Behavioral Sciences; Climate externality; overlapping generations; climate pol- icy; generational conÂ‡ict; dynamic bargaining; Markov perfection; ad- justment costs. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-ene, nep-env and nep-reg
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