Longevity and environmental quality in an OLG model

Abstract

Whereas existing OLG models with endogenous longevity neglect the impact of environmental quality on mortality, this paper studies the design of the optimal public intervention in a two-period OLG model where longevity is influenced positively by health expenditures, but negatively by pollution due to production. It is shown that if individuals, when choosing how much to spend on health, do not internalize the impact of their decision on environmental quality (i.e. the space available for each person), the decentralization of the social optimum requires a tax not only on capital income, but also, on health expenditures. The sensitivity of the optimal second-best public intervention is also explored numerically.

Global Demographic Change and Climate Policies

“…Curtis et al (2015) show that demographic patterns are able to explain over half of the household savings rate fluctuations in China, while Sánchez-Romero (2013) finds that the demographic transition in Taiwan, during the period 8 Notice that in our modelling, demographic variables are exogenous and temperature changes only affect production. Several studies assess the effect of population aging on emissions and the environment, see Balestra and Dottori (2012), Jouvet et al (2010), Varvarigos (2010), Mariani et al (2010), andOno (2005). De la Croix and Gosseries (2012) study the effect of climate policies on fertility and human capital.…”

Life expectancy and the environment

“…The idea of explaining environmental care with an uncertain lifetime is instead present in Ono and Maeda (2001), although in their model environmental quality does not affect longevity. On the contrary, Jouvet et al (2007) consider the impact of environmental quality on mortality, but neglect completely the role of mortality in defining environmental choices and leave no room for maintenance. Furthermore, our model is also somewhat related to Jouvet et al (2000), in which the degree of inter-generational altruism is used to explain environmental choices.…”

Survival to Adulthood and the Growth Drag of Pollution

“…Related to this paper is Ono and Maeda (2001) and Jouvet et al (2010). Varvarigos (2010) considers endogenous longevity, based on the seminal work by Chakraborty (2004).…”