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Resolving Intergenerational Conflict over the Environment under the Pareto Criterion

Author

Listed:
  • Torben M. Andersen
  • Joydeep Bhattacharya
  • Pan Liu

Abstract

We describe a “business as usual” (BAU) economy in which pollution is a by-product of productive activity by the current generation but “damages” production for future generations. Over time, conditions in the BAU economy become dire: it gets increasingly polluted, consumption falls and generational welfare levels decline. A government introduces costly pollution abatement and finances it via distorting taxes and borrowing on perfect international markets. Pollution levels start to decline, generating downstream welfare gains, some of which the government taxes away, without hurting anyone, to help pay off the debt, that too, in finite time. Along the transition, every generation faces less pollution, consumes more and is happier than if life had continued in the BAU world.

Suggested Citation

  • Torben M. Andersen & Joydeep Bhattacharya & Pan Liu, 2016. "Resolving Intergenerational Conflict over the Environment under the Pareto Criterion," CESifo Working Paper Series 6053, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_6053
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    File URL: https://www.cesifo-group.de/DocDL/cesifo1_wp6053.pdf
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    pollution; abatement; debt; environmental policy; Pareto criterion;

    JEL classification:

    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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