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Asset prices and climate policy

Larry Karp and Armon Rezai

Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley

Abstract: 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 e¤ects of policy, regardless of people’s concern for future generations. These markets can lead self-interested agents to undertake signi…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 e¤ects across the currently living generations.

Keywords: Social and Behavioral Sciences; Climate externality; overlapping generations; climate pol- icy; generational con‡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
Date: 2017-08-31
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