IDEAS home Printed from https://ideas.repec.org/p/ums/papers/2011-24.html
   My bibliography  Save this paper

Positional goods, climate change and the social returns to investment

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://www.umass.edu/economics/publications/2011-24.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. William D. Nordhaus, 2006. "Principles of National Accounting For Nonmarket Accounts," NBER Chapters,in: A New Architecture for the U.S. National Accounts, pages 143-160 National Bureau of Economic Research, Inc.
    2. Ackerman, Frank & Stanton, Elizabeth A. & Bueno, Ramón, 2013. "CRED: A new model of climate and development," Ecological Economics, Elsevier, vol. 85(C), pages 166-176.
    3. Fafchamps, Marcel & Shilpi, Forhad, 2008. "Subjective welfare, isolation, and relative consumption," Journal of Development Economics, Elsevier, vol. 86(1), pages 43-60, April.
    4. Richard Howarth, 2000. "Climate Change and the Representative Agent," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 15(2), pages 135-148, February.
    5. Blanchflower, David G. & Oswald, Andrew J., 2004. "Well-being over time in Britain and the USA," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1359-1386, July.
    6. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 963-1002.
    7. Ng, Y.K. & Wang, J., 1993. "A Case for Cardinal Utility and Aritrary Choice of Commodity Units," Papers 93-26, New South Wales - School of Economics.
    8. Thomas Michl, 2010. "Discounting Nordhaus," Review of Political Economy, Taylor & Francis Journals, vol. 22(4), pages 535-549.
    9. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
    10. William D. Nordhaus, 2006. "The "Stern Review" on the Economics of Climate Change," NBER Working Papers 12741, National Bureau of Economic Research, Inc.
    11. Olivier Blanchard, 2009. "The State of Macro," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 209-228, May.
    12. Dale Jorgenson & J. Steven Landefeld & William D. Nordhaus, 2006. "A New Architecture for the U.S. National Accounts," NBER Books, National Bureau of Economic Research, Inc, number jorg06-1.
    13. Armon Rezai & Duncan Foley & Lance Taylor, 2012. "Global warming and economic externalities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 49(2), pages 329-351, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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.

    More about this item

    Keywords

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

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ums:papers:2011-24. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Daniele Girardi). General contact details of provider: http://edirc.repec.org/data/deumaus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.