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A Dynamic Analysis of Human Welfare in a Warming Planet

Anthropogenic greenhouse gas (GHG) emissions have caused atmospheric concentrations with no precedents in the last half a million years, inducing serious uncertainties about future climates and their effects on human welfare. Recent climate science supports the view that the climate stabilization will require very low GHG emissions in the future. We ask: Is a path of low emissions compatible with sustainable levels of human welfare? With steady growth in human quality of life? Addressing these questions requires both defining welfare criteria and empirically estimating the possible paths of the economy. We specify and calibrate a dynamic model with four intertemporal links: education, physical capital, knowledge and the environment. In line with Nordhaus (2008a) and with the Stern Review (2007), we assume that GHG emissions allow increased production, while a higher stock of atmospheric carbon decreases production. Our index of human welfare, which we call quality of life (QuoL), emphasizes education, knowledge, and the environment, affected by greenhouse gas emissions, in addition to consumption and leisure. Thus, we avoid a Consumptionist Fallacy –- that welfare depends only on commodity consumption and perhaps leisure. We reject discounted utilitarianism as a normative criterion, and consider two alternatives. The first is an intergenerational maximin criterion, which maximizes the quality of life of the first generation subject to maintaining at least that level for all successive generations. The second is human development optimization, that seeks the maximization of the QuoL of the first generation subject to achieving a given, constant rate of growth in all subsequent generations. Hence, our analysis focuses on a human notion of sustainability, as opposed to the conventional "green" sustainability, limited to keeping the quality of the environment constant. Because our dynamic optimization programs defy explicit analytical solutions, our approach has been computational. As a benchmark, we consider a simple model with physical and human capital, for which we prove a turnpike theorem. We then devise a computational algorithm inspired by the turnpike property to construct feasible, although not necessarily optimal, paths in the more complex and realistic model. Our analysis indicates that, with GHG emission paths entailing very low emissions in the future, positive rates of growth in QuoL are possible while the first generation experiences a QuoL higher than the historical reference level. We also observe a tradeoff between the quality of life of the first generation and the rate of growth in the quality of life. Yet Generation 1's sacrifice for the sake of a higher growth rate appears to be small. The paths that we compute involve investments in knowledge at noticeably higher levels than in the past.

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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1673.

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Length: 69 pages
Date of creation: Aug 2008
Date of revision:
Handle: RePEc:cwl:cwldpp:1673
Contact details of provider: Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
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Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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  1. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  2. Martin L. Weitzman, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 703-724, September.
  3. Philip Oreopoulos & Kjell G. Salvanes, 2011. "Priceless: The Nonpecuniary Benefits of Schooling," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 159-84, Winter.
  4. John E. Roemer, 2005. "Intergenerational Justice and Sustainability under the Leximin Ethic," Cowles Foundation Discussion Papers 1512, Cowles Foundation for Research in Economics, Yale University.
  5. Sergio T. Rebelo, 1990. "Long Run Policy Analysis and Long Run Growth," NBER Working Papers 3325, National Bureau of Economic Research, Inc.
  6. Humberto Llavador & John E. Roemer & Joaquim Silvestre, 2009. "Intergenerational justice when future worlds are uncertain," Economics Working Papers 1178, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2010.
  7. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  8. Joaquim Silvestre, 2002. "Progress and conservation under Rawls's maximin principle," Social Choice and Welfare, Springer, vol. 19(1), pages 1-27.
  9. Neumayer, Eric, 1999. "Global warming: discounting is not the issue, but substitutability is," Energy Policy, Elsevier, vol. 27(1), pages 33-43, January.
  10. Angel de la Fuente & Rafael Domenech, 2001. "Schooling Data, Technological Diffusion, and the Neoclassical Model," American Economic Review, American Economic Association, vol. 91(2), pages 323-327, May.
  11. Salvador Ortigueira, 1997. "A Dynamic Analysis of an Endogenous Growth Model with Leisure," Working Papers 9705, Centro de Investigacion Economica, ITAM.
  12. D. Gale Johnson, 2000. "Population, Food, and Knowledge," American Economic Review, American Economic Association, vol. 90(1), pages 1-14, March.
  13. Simon Dietz & Chris Hope & Nicholas Stern & Dimitri Zenghelis, 2007. "REFLECTIONS ON THE STERN REVIEW (1) A Robust Case for Strong Action to Reduce the Risks of Climate Change," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 8(1), pages 121-168, January.
  14. Arrow Kenneth J, 2007. "Global Climate Change: A Challenge to Policy," The Economists' Voice, De Gruyter, vol. 4(3), pages 1-5, June.
  15. 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.
  16. Daniel Kahneman & Alan B. Krueger, 2006. "Developments in the Measurement of Subjective Well-Being," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 3-24, Winter.
  17. William D. Nordhaus, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 686-702, September.
  18. Gerlagh, Reyer & van der Zwaan, B. C. C., 2002. "Long-Term Substitutability between Environmental and Man-Made Goods," Journal of Environmental Economics and Management, Elsevier, vol. 44(2), pages 329-345, September.
  19. John Roemer, 2011. "The Ethics of Intertemporal Distribution in a Warming Planet," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 48(3), pages 363-390, March.
  20. repec:oup:restud:v:52:y:1985:i:1:p:153-70 is not listed on IDEAS
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