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An Intergenerational Cost-Benefit Analysis of Climate Change

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Author Info
Yusuf Kavuncu (University of California, Santa Barbara)
Shawn Knabb (Economics Department, CU-Denver,)
Abstract

This paper examines the intergenerational costs and benefts of environmental regulation in the context of climate change. We believe this issue has not been adequately addressed in comparison with the search for efficiency-induced outcomes in the relevant literature. The cost-benefit analysis employs a decentralized two-period overlapping generations framework based on the standard assumptions of the integrated assessment models. This structure allows us to capture realistic market imperfections arising from individual heterogeneity and productive activities across generations. On the policy front, we assume that the Kyoto Protocol, which is the most prominent global initiative, is strictly binding. Our results from numerical simulations indicate that the emissions stabilization policy is costly with some unpleasant implications for current and near future generations. The benefits of the Protocol will not be likely to appear for a long period oftime. Yet, the more detrimental the environmental deterioration is, the sooner the net benefit of stabilization policy will be.

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Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number wp6-01.

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Date of creation: 13 Aug 2001
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Handle: RePEc:cdl:ucsbec:wp6-01

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Related research
Keywords: Climate Change; Environmental Policy; Intergenerational Cost and Benefit; Overlapping Generations;

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References listed on IDEAS
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  1. Howarth, Richard B, 1998. " An Overlapping Generations Model of Climate-Economy Interactions," Scandinavian Journal of Economics, Blackwell Publishing, vol. 100(3), pages 575-91, September. [Downloadable!] (restricted)
  2. Michael Toman, 1998. "Research Frontiers in the Economics of Climate Change," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 11(3), pages 603-621, April. [Downloadable!] (restricted)
  3. Kolstad, Charles D., 1996. "Learning and Stock Effects in Environmental Regulation: The Case of Greenhouse Gas Emissions," Journal of Environmental Economics and Management, Elsevier, vol. 31(1), pages 1-18, July. [Downloadable!] (restricted)
  4. Azar, Christian & Sterner, Thomas, 1996. "Discounting and distributional considerations in the context of global warming," Ecological Economics, Elsevier, vol. 19(2), pages 169-184, November. [Downloadable!] (restricted)
  5. Richard Howarth & Richard Norgaard, 1993. "Intergenerational transfers and the social discount rate," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 3(4), pages 337-358, August. [Downloadable!] (restricted)
  6. Gerlagh, Reyer & van der Zwaan, B. C. C., 2001. "The effects of ageing and an environmental trust fund in an overlapping generations model on carbon emission reductions," Ecological Economics, Elsevier, vol. 36(2), pages 311-326, February. [Downloadable!] (restricted)
  7. Chao, Hung-po & Peck, Stephen, 2000. "Greenhouse gas abatement: How much? and Who pays?," Resource and Energy Economics, Elsevier, vol. 22(1), pages 1-20, January. [Downloadable!] (restricted)
  8. Kelly, David L. & Kolstad, Charles D., 2001. "Malthus and Climate Change: Betting on a Stable Population," Journal of Environmental Economics and Management, Elsevier, vol. 41(2), pages 135-161, March. [Downloadable!] (restricted)
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  9. Roughgarden, Tim & Schneider, Stephen H., 1999. "Climate change policy: quantifying uncertainties for damages and optimal carbon taxes," Energy Policy, Elsevier, vol. 27(7), pages 415-429, July. [Downloadable!] (restricted)
  10. Gjerde, Jon & Grepperud, Sverre & Kverndokk, Snorre, 1999. "Optimal climate policy under the possibility of a catastrophe," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 289-317, August. [Downloadable!] (restricted)
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  11. Richard Howarth, 2000. "Climate Change and the Representative Agent," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 15(2), pages 135-148, February. [Downloadable!] (restricted)
  12. Burton Peter S., 1993. "Intertemporal Preferences and Intergenerational Equity Considerations in Optimal Resource Harvesting," Journal of Environmental Economics and Management, Elsevier, vol. 24(2), pages 119-132, March. [Downloadable!] (restricted)
  13. Marini Giancarlo & Scaramozzino Pasquale, 1995. "Overlapping Generations and Environmental Control," Journal of Environmental Economics and Management, Elsevier, vol. 29(1), pages 64-77, July. [Downloadable!] (restricted)
  14. Michele MORETTO & Roberto TAMBORINI, 1999. "Climate Change, Catastrophic Environmental Effects and Overlapping Generations," Rivista Italiana degli Economisti, SIE - Societa' Italiana degli Economisti (I), vol. 3(2), pages 335-358, December. [Downloadable!] (restricted)
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