Global warming and economic externalities |
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Authors: | Armon Rezai Duncan K Foley Lance Taylor |
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Institution: | (1) Department of Applied Economics and Management, Cornell University, Ithaca, NY 14853, USA;(2) Department of Agricultural Economics and Rural Sociology, Pennsylvania State University, University Park, PA 16802, USA |
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Abstract: | 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. |
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Keywords: | |
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