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Asset Pricing Implications of Macroeconomic Interventions An Application to Climate Policy

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  • Rajnish Mehra

Abstract

This paper illustrates that evaluating alternate abatement polices that affect the growth path of an economy on the basis of their effects on asset valuation may not be welfare enhancing. We show that the class of abatement polices considered in the integrated assessment literature are robust with respect to the choice of a discount factor if lifetime consumption equivalents are used as a metric. We argue against a global welfare function in the presence of significant global household heterogeneity. While economic analysis is a useful tool for evaluating different policies for a homogenous class of households, inter household comparisons are an ethical issue.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19146.

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Date of creation: Jun 2013
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Handle: RePEc:nbr:nberwo:19146

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  1. Robert S. Pindyck, 2010. "Modeling the Impact of Warming in Climate Change Economics," Working Papers 1001, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  2. DeCanio, Stephen J. & Fremstad, Anders, 2011. "Economic feasibility of the path to zero net carbon emissions," Energy Policy, Elsevier, vol. 39(3), pages 1144-1153, March.
  3. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  4. DeCanio, Stephen J., 2009. "The political economy of global carbon emissions reductions," Ecological Economics, Elsevier, vol. 68(3), pages 915-924, January.
  5. Weitzman, Martin L., 1998. "Why the Far-Distant Future Should Be Discounted at Its Lowest Possible Rate," Journal of Environmental Economics and Management, Elsevier, vol. 36(3), pages 201-208, November.
  6. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
  7. Donaldson, John B & Mehra, Rajnish, 1984. "Comparative Dynamics of an Equilibrium Intertemporal Asset Pricing Model," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 491-508, July.
  8. Partha Dasgupta, 2008. "Discounting climate change," Journal of Risk and Uncertainty, Springer, vol. 37(2), pages 141-169, December.
  9. Mehra, Rajnish, 1988. "On the Existence and Representation of Equilibrium in an Economy with Growth and Nonstationary Consumption," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(1), pages 131-35, February.
  10. Nicholas Stern, 2008. "The Economics of Climate Change," American Economic Review, American Economic Association, vol. 98(2), pages 1-37, May.
  11. Epstein, Larry G & Zin, Stanley E, 1991. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 263-86, April.
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