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An Intergenerational Cost-Benefit Analysis of Climate Change

  • Kavuncu, Yusuf Okan
  • Knabb, Shawn D.
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    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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    File URL: http://www.escholarship.org/uc/item/72v881dd.pdf;origin=repeccitec
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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 qt72v881dd.

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    Date of creation: 13 Aug 2001
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    Handle: RePEc:cdl:ucsbec:qt72v881dd
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    1. Marini Giancarlo & Scaramozzino Pasquale, 1995. "Overlapping Generations and Environmental Control," Journal of Environmental Economics and Management, Elsevier, vol. 29(1), pages 64-77, July.
    2. Jon Gjerde & Sverre Grepperud & Snorre Kverndokk, 1998. "Optimal Climate Policy under the Possibility of a Catastrophe," Discussion Papers 209, Research Department of Statistics Norway.
    3. repec:rie:review:v:4:y:1999:i:3:n:2 is not listed on IDEAS
    4. Moretto Michele & Tamborini Roberto, 1999. "Climate Change, Catastrophic Environmental Effects and Overlapping Generations," Rivista italiana degli economisti, Società editrice il Mulino, issue 3, pages 335-358.
    5. Howarth, Richard B, 1998. " An Overlapping Generations Model of Climate-Economy Interactions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(3), pages 575-91, September.
    6. 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.
    7. 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.
    8. 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.
    9. Kelly, David L. & Kolstad, Charles D., 1999. "Malthus and Climate Change: Betting on a Stable Population," University of California at Santa Barbara, Economics Working Paper Series qt9ks625sk, Department of Economics, UC Santa Barbara.
    10. Toman, Michael, 1998. "Research Frontiers in the Economics of Climate Change," Discussion Papers dp-98-32, Resources For the Future.
    11. Burton, P.S., 1991. "Intertemporal Preferences and Intergenerational Equity Considerations in Optimal Resource Harvesting," Department of Economics at Dalhousie University working papers archive 91-06, Dalhousie, Department of Economics.
    12. Richard B. Howarth, 1996. "Climate Change And Overlapping Generations," Contemporary Economic Policy, Western Economic Association International, vol. 14(4), pages 100-111, October.
    13. 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.
    14. 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.
    15. 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.
    16. 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.
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