An Overlapping Generations Model of Climate‐Economy Interactions

Abstract

A numerically calibrated overlapping generations model of climate change and the world econommy is examined in this paper. In the absence of intergenerational transfers, efficient rates of greenhouse gas emissions abatement rise from 16% in the present to 25% in the long run, while mean global temperature increases by 7.4°C relative to the preindustrial norm. A utilitarian optimum, which attaches equal weight to each generation's life‐cycle utility, yields abatement rates that rise from 48% to 89%, with a long‐run temperature increase of 3.4°C. A second‐best utilitarian path, in which intergenerational transfers are by assumption institutionally infeasible, also supports stringent abatement measures.

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