Abstract

http://ssrn.com/abstract=2284777
 


 



The Trade-Off between Intra- and Intergenerational Equity in Climate Policy


Snorre Kverndokk


Ragnar Frisch Centre for Economic Research

Eric Naevdal


Princeton University - Woodrow Wilson School of Public and International Affairs

Linda Nostbakken


University of Alberta - Department of Marketing, Business Economics & Law

December 1, 2013

CESifo Working Paper Series No. 4285

Abstract:     
This paper focuses on two equity dimensions of climate policy, intra- and intergenerational equity, and analyzes the implications of equity preferences on climate policy, and on the production and consumption patterns in rich and poor countries. We develop a dynamic two-region model, in which each region suffers from local pollution and global warming, but also has an inequality aversion over current consumption allocations. Inequality aversion lifts the consumption path of the poor region, while the rich region must take a greater share of the climate burden. Furthermore, with inequality aversion, the optimal climate policy leads to higher investment in clean capital in the North and in dirty capital in the South, thereby allowing the South to pollute more and develop faster. The optimal policy may even require the poor region to increase emissions relative to the uncoordinated business-as-usual case. Introducing transfers between the regions reinforces these effects. However, loans to poor countries to reduce inequality may result in a debt crisis, and hence, debt remittance may be part of the optimal climate policy.

Number of Pages in PDF File: 46

Keywords: intragenerational equity, intergenerational equity, inequality aversion, climate policy, economic development, international transfers, debt crisis

JEL Classification: C630, D310, D630, Q540

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Date posted: June 26, 2013 ; Last revised: January 16, 2014

Suggested Citation

Kverndokk, Snorre and Naevdal, Eric and Nostbakken, Linda, The Trade-Off between Intra- and Intergenerational Equity in Climate Policy (December 1, 2013). CESifo Working Paper Series No. 4285. Available at SSRN: http://ssrn.com/abstract=2284777

Contact Information

Snorre Kverndokk (Contact Author)
Ragnar Frisch Centre for Economic Research ( email )
Gaustadalleen 21
N-0349 Oslo
Norway
+47 22958811 (Phone)
+47 22958825 (Fax)
HOME PAGE: http://www.frisch.uio.no/cv/snorrek_eng.html
Eric Naevdal
Princeton University - Woodrow Wilson School of Public and International Affairs ( email )
Princeton University
Princeton, NJ 08544-1021
United States
Linda Nostbakken
University of Alberta - Department of Marketing, Business Economics & Law
Edmonton, Alberta T6G 2R6
Canada

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