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Asset prices and climate policy

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  • Karp, Larry
  • Rezai, Armon

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 peoples 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.

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  • Karp, Larry & Rezai, Armon, 2017. "Asset prices and climate policy," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt6fx579fp, Department of Agricultural & Resource Economics, UC Berkeley.
    • Handle: RePEc:cdl:agrebk:qt6fx579fp
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    2. van der Ploeg, Frederick & Rezai, Armon, 2020. "The risk of policy tipping and stranded carbon assets," Journal of Environmental Economics and Management, Elsevier, vol. 100(C).

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    Keywords

    Social and Behavioral Sciences; Climate externality; overlapping generations; climate pol- icy; generational conict; dynamic bargaining; Markov perfection; ad- justment costs.;
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