Positional goods, climate change and the social returns to investment
AbstractThe economic analysis of global warming is dominated by models based on optimal growth theory. This approach can generate biases in the presence of positional goods and status effects. We show that by ignoring these direct consumption externalities, integrated assessment models overestimate the social return to conventional investment and underestimate the optimal amount of investment in mitigation. Empirical evidence on the influence of relative consumption on utility suggests that the bias could be quantitatively significant. Our results from a simple survey support this conclusion. JEL Categories: Q13, I3, E1
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Bibliographic InfoPaper provided by University of Massachusetts Amherst, Department of Economics in its series UMASS Amherst Economics Working Papers with number 2011-24.
Date of creation: Oct 2011
Date of revision:
representative agent; consumption externalities; positional goods; relative consumption; welfare; global warming; discount rates.;
Find related papers by JEL classification:
- Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
- I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
- E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-01 (All new papers)
- NEP-CWA-2011-11-01 (Central & Western Asia)
- NEP-ENE-2011-11-01 (Energy Economics)
- NEP-ENV-2011-11-01 (Environmental Economics)
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