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On the Economics of Climate Policy


  • Becker Gary S.

    () (University of Chicago)

  • Murphy Kevin M.

    () (University of Chicago)

  • Topel Robert H.

    () (University of Chicago)


We analyze the central features of economic policies to mitigate climate change. The basic structure of Pigouvian “carbon pricing” is shown to follow from a standard Hotelling problem for the intertemporal pricing of an exhaustible resource. We extend this analysis to consider the strength and timing of research incentives, the costs of implementation delay and the impact of anticipated future technologies on current carbon prices. We study a variety of issues related to the valuation of climate investments, including uncertainty as to the future timing and distribution of climate impacts and the appropriate social rate of discount for valuing policies. Under reasonable circumstances the insurance properties of climate investments may warrant unusually low discount rates. We use the same framework to argue that policy makers in developing countries will discount the expected returns from climate investments more heavily, because such investments have weaker insurance value in the developing world.

Suggested Citation

  • Becker Gary S. & Murphy Kevin M. & Topel Robert H., 2011. "On the Economics of Climate Policy," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(2), pages 1-27, May.
  • Handle: RePEc:bpj:bejeap:v:10:y:2011:i:2:n:19

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    Cited by:

    1. Tatyana Deryugina & Laura Kawano & Steven Levitt, 2014. "The Economic Impact of Hurricane Katrina on its Victims: Evidence from Individual Tax Returns," NBER Working Papers 20713, National Bureau of Economic Research, Inc.
    2. repec:bla:econom:v:84:y:2017:i:335:p:345-364 is not listed on IDEAS

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