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Overlapping Generations or Infinitely-Lived Agents: Intergenerational Altruism and the Economics of Global Warming

  • GUNTER Stephan

    ()

  • GEORG MÜLLER-FÜRSTENBERGER
  • PASCAL Previdoli
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    Do we need an overlapping generations model for the economics of global warming? To answer this question, an infinitely-lived agent (ILA) approach and an overlapping generations (OLG) model are contrasted. ILA and OLG can be viewed as polar representations of intergenerational altruism. With ILA an immortal agent acts through his investment/savings decisions as trustee on the behalf of the future generations. With OLG, agents need not behave altruistic. They simply save during working years and dissave completely during retirement. Nevertheless, ILA and OLG must not differ in their implication for greenhouse policy. Greenhouse gas abatement is a straightforward alternative to physical capital formation and, even without altruism, each age cohort has an incentive to provide current abatement in order to reduce future damages attributable to climate change. Indeed, under reasonable assumptions and parameter values, our simulations reveal such an invariance result. Provided carbon taxes are the only policy tool and tax revenues are recycled through socially mandated rules, projections of economic growth, climate change and energy consumption are only insignificantly affected by the choice of approach. Copyright Kluwer Academic Publishers 1997

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    Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

    Volume (Year): 10 (1997)
    Issue (Month): 1 (July)
    Pages: 27-40

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    Handle: RePEc:kap:enreec:v:10:y:1997:i:1:p:27-40
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    1. Schelling, Thomas C, 1995. "Intergenerational discounting," Energy Policy, Elsevier, vol. 23(4-5), pages 395-401.
    2. Solow, Robert M, 1986. " On the Intergenerational Allocation of Natural Resources," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(1), pages 141-49.
    3. Nordhaus, William D, 1991. "To Slow or Not to Slow: The Economics of the Greenhouse Effect," Economic Journal, Royal Economic Society, vol. 101(407), pages 920-37, July.
    4. d'Arge, Ralph C & Schulze, William D & Brookshire, David S, 1982. "Carbon Dioxide and Intergenerational Choice," American Economic Review, American Economic Association, vol. 72(2), pages 251-56, May.
    5. Manne, Alan & Mendelsohn, Robert & Richels, Richard, 1995. "MERGE : A model for evaluating regional and global effects of GHG reduction policies," Energy Policy, Elsevier, vol. 23(1), pages 17-34, January.
    6. Stephan, Gunter, 1993. "Myopic decision rules and the innovation of techniques: Formulation and solution of intertemporal equilibrium models," Structural Change and Economic Dynamics, Elsevier, vol. 4(1), pages 127-143, June.
    7. Marini Giancarlo & Scaramozzino Pasquale, 1995. "Overlapping Generations and Environmental Control," Journal of Environmental Economics and Management, Elsevier, vol. 29(1), pages 64-77, July.
    8. Howarth, Richard B & Norgaard, Richard B, 1992. "Environmental Valuation under Sustainable Development," American Economic Review, American Economic Association, vol. 82(2), pages 473-77, May.
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