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Asset Prices and Climate Policy

Larry Karp and Armon Rezai
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Larry Karp: UC Berkeley

No 595, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: People might reduce carbon emissions to protect themselves, their wealth, or future generations from climate damage. An overlapping generations climate model with endogenous asset price and investment levels disentangles these incentives. Asset markets capitalize the future effects of policy, regardless of people’s concern for future generations. These markets can lead self-interested agents to undertake significant abatement. A small climate policy that raises the price of capital increases old agents’ welfare and also increases welfare of young agents with a high intertemporal elasticity of substitution. Climate policy can also have subtle distributional effects across the currently living generations.

New Economics Papers: this item is included in nep-dge, nep-ene and nep-env
Date: 2018
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Working Paper: Asset prices and climate policy (2017) Downloads
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