Despite worldwide policy efforts such as the Kyoto Protocol, the emission of greenhouse gases (GHG) remains a negative externality. Economic equilibrium paths in the presence of such an uncorrected externality are inefficient; as a consequence there is no real economic opportunity cost to correcting this externality by mitigating global warming. Mitigation investment using resources diverted from conventional investments can raise the economic well-being of both current and future generations. The economic literature on GHG emissions misleadingly focuses attention on the intergenerational equity aspects of mitigation by using a hybrid constrained optimal path as the "business-as-usual" benchmark. We calibrate a simple Keynes-Ramsey growth model to illustrate the significant potential Pareto-improvement from mitigation investment, and to explain the equilibrium concept appropriate to modeling an uncorrected negative externality.
Identifer | oai:union.ndltd.org:VIENNA/oai:epub.wu-wien.ac.at:3037 |
Date | 02 1900 |
Creators | Rezai, Armon, Foley, Duncan K., Taylor, Lance |
Publisher | Springer Verlag |
Source Sets | Wirtschaftsuniversität Wien |
Language | English |
Detected Language | English |
Type | Article, NonPeerReviewed |
Format | application/pdf |
Relation | http://dx.doi.org/10.1007/s00199-010-0592-4, http://www.springerlink.com/, http://epub.wu.ac.at/3037/ |
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