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Self-enforcing intergenerational social contract as a source of Pareto improvement and emission mitigation

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  • Burghaus, Kerstin
  • Dao, Thang Nguyen
  • Edenhofer, Ottmar

Abstract

We consider, in a general equilibrium overlapping generations (OLG) model with environmental externalities, a contract between successive generations, whereby agents of the current working-age generation privately invest a share of their labor income in pollution mitigation in exchange for a transfer to their old-age capital income paid by the next generation. We analyze under which conditions there exist contracts which are Pareto-improving compared to an equilibrium without contract and characterize the set of Pareto-improving mitigation-transfer combinations, the Pareto frontier and the Nash bargaining solution. Further, we prove that steady state emissions under a Pareto-improving contract are lower than without a contract. In the second part of the paper, we study a non-cooperative setting, taking into account that credibly committing to a contract might not be possible. We show that there exists mitigation transfer schemes which are both Pareto-improving and give no generation an incentive to deviate from the provisions of the contract.

Suggested Citation

  • Burghaus, Kerstin & Dao, Thang Nguyen & Edenhofer, Ottmar, 2015. "Self-enforcing intergenerational social contract as a source of Pareto improvement and emission mitigation," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113135, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc15:113135
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    File URL: https://www.econstor.eu/bitstream/10419/113135/1/VfS_2015_pid_500.pdf
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    Cited by:

    1. Andersen, Torben M. & Bhattacharya, Joydeep & Liu, Pan, 2020. "Resolving intergenerational conflict over the environment under the Pareto criterion," Journal of Environmental Economics and Management, Elsevier, vol. 100(C).

    More about this item

    JEL classification:

    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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