Generational Welfare under a Climate‐Change Policy with Induced Innovation*

Rezai

2021

Dyn Games Appl

Trade changes incentives to protect an open-access natural resource independently of its effect on the resource price. General equilibrium linkages cause resource policy to affect the price of privately owned assets regardless of whether they are used in the resource sector. In the closed economy, the asset market in our overlapping generations setting creates incentives for currently living agents to protect the natural resource. The interplay of the asset market and general equilibrium effects causes trade to reverse these incentives. Trade liberalization and the establishment of formal property rights are policy complements: the former makes the latter more important.

Section: Introductionmentioning

confidence: 99%

Trade and Resource Sustainability with Asset Markets

Rezai

2021

Dyn Games Appl

“…Marini and Scaramozzino (1995) analyze the intertemporal effects of environmental externalities and optimal, time-consistent fiscal policy. Laurent-Lucchetti and Leach (2011) note that current owners of capital capture the benefits of policy-induced innovation. Bovenberg andHeijdra (1998, 2002) and Heijdra et al (2006) show that the issuance of public debt can be used to achieve intergenerational transfers, leading to Pareto improvements; they examine the difference in distributional impacts of profit, wage, and lump-sum taxes.…”

Section: Introductionmentioning

confidence: 99%

The Political Economy of Environmental Policy with Overlapping Generations

Rezai

2013

SSRN Journal

A two-sector OLG model illuminates previously unexamined intergenerational effects of a tax that protects an environmental stock. A traded asset capitalizes the economic returns to future tax-induced environmental improvements, benefiting the current asset owners, the old generation. Absent a transfer, the tax harms the young generation by decreasing their real wage. Future generations benefit from the tax-induced improvement in environmental stock. The principal intergenerational conflict arising from public policy is between generations alive at the time society imposes the policy, not between generations alive at different times. A Pareto-improving policy can be implemented under various political economy settings.

“…However, the social planner discounts the old generations' future utility from the time of their birth, not the current time, giving older people less weight in evaluating current policy, eliminating the time inconsistency. Many papers use OLG models to study environmental and resource problems (Kemp and Long, 1979;John et al, 1995;Koskela et al, 2002), and a growing number use OLG models to study climate policy (Howarth, 1998;Gerlagh and van der Zwaan, 2001;Rasmussen, 2003;Laurent-Lucchetti and Leach, 2011). Those papers do not include the strategic elements that arise with nonconstant discounting, which is central to my article.…”

Section: Discountingmentioning

confidence: 99%

Provision of a Public Good with Multiple Dynasties

2017

The Economic Journal

Because carbon emissions create externalities across countries and generations, climate policy requires international cooperation and intergenerational altruism. A differential game using overlapping generations with intergenerational altruism shows how altruism and cooperation interact, and provides estimates of their relative importance in determining equilibrium steady-state carbon levels. A small increase in cooperation has a larger equilibrium effect than a small increase in altruism, beginning at empirically plausible levels. A large increase in altruism may have a larger equilibrium effect, compared to a large increase in cooperation. Climate investments may be dynamic strategic complements, reducing but not eliminating incentives to free ride.