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Positional goods, climate change and the social returns to investment

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  • Leila Davis

    (University of Massachusetts Amherst)

  • Peter Skott

    (University of Massachusetts Amherst)

Abstract

The economic analysis of global warming is dominated by models based on optimal growth theory. This approach can generate biases in the presence of positional goods and status effects. We show that by ignoring these direct consumption externalities, integrated assessment models overestimate the social return to conventional investment and underestimate the optimal amount of investment in mitigation. Empirical evidence on the influence of relative consumption on utility suggests that the bias could be quantitatively significant. Our results from a simple survey support this conclusion. JEL Categories: Q13, I3, E1

Suggested Citation

  • Leila Davis & Peter Skott, 2011. "Positional goods, climate change and the social returns to investment," UMASS Amherst Economics Working Papers 2011-24, University of Massachusetts Amherst, Department of Economics.
    • Handle: RePEc:ums:papers:2011-24
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    File URL: http://www.umass.edu/economics/publications/2011-24.pdf
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    References listed on IDEAS

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    Cited by:

    1. Skott, Peter & Davis, Leila, 2013. "Distributional biases in the analysis of climate change," Ecological Economics, Elsevier, vol. 85(C), pages 188-197.

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    More about this item

    Keywords

    representative agent; consumption externalities; positional goods; relative consumption; welfare; global warming; discount rates.;
    All these keywords.

    JEL classification:

    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models

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