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An Intergenerational Cost-Benefit Analysis of Climate Change

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  • Kavuncu, Yusuf Okan
  • Knabb, Shawn D.

Abstract

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.

Suggested Citation

  • Kavuncu, Yusuf Okan & Knabb, Shawn D., 2001. "An Intergenerational Cost-Benefit Analysis of Climate Change," University of California at Santa Barbara, Economics Working Paper Series qt72v881dd, Department of Economics, UC Santa Barbara.
  • Handle: RePEc:cdl:ucsbec:qt72v881dd
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    References listed on IDEAS

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    8. Gjerde, Jon & Grepperud, Sverre & Kverndokk, Snorre, 1999. "Optimal climate policy under the possibility of a catastrophe," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 289-317, August.
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    10. Burton Peter S., 1993. "Intertemporal Preferences and Intergenerational Equity Considerations in Optimal Resource Harvesting," Journal of Environmental Economics and Management, Elsevier, vol. 24(2), pages 119-132, March.
    11. Howarth, Richard B, 1998. " An Overlapping Generations Model of Climate-Economy Interactions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(3), pages 575-591, September.
    12. 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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