Non-Cooperative and Cooperative Responses to Climate Catastrophes in the Global Economy: A North-South Perspective

29 Pages Posted: 13 Oct 2015

See all articles by Aart de Zeeuw

Aart de Zeeuw

Tilburg University - Department of Economics

Rick van der Ploeg

University of Oxford

Date Written: October 2015

Abstract

The optimal response to a potential productivity shock which becomes more imminent with global warming is to have carbon taxes to curb the risk of a calamity and to accumulate precautionary capital to facilitate smoothing of consumption. This paper investigates how differences between regions in terms of their vulnerability to climate change and their stage of development affect the cooperative and non-cooperative responses to this aspect of climate change. It is shown that the cooperative response to these stochastic tipping points requires converging carbon taxes for developing and developed regions. The non-cooperative response leads to a bit more precautionary saving and diverging carbon taxes. We illustrate the various outcomes with a simple stylized North-South model of the global economy.

Keywords: asymmetries, carbon tax, free riding, global warming, growth, international cooperation, precautionary capital, risk avoidance, tipping point

JEL Classification: D81, H20, O40, Q31, Q38

Suggested Citation

de Zeeuw, Aart J. and van der Ploeg, Frederick, Non-Cooperative and Cooperative Responses to Climate Catastrophes in the Global Economy: A North-South Perspective (October 2015). CEPR Discussion Paper No. DP10870, Available at SSRN: https://ssrn.com/abstract=2673622

Aart J. De Zeeuw (Contact Author)

Tilburg University - Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2065 (Phone)
+31-13-466-3042 (Fax)

Frederick Van der Ploeg

University of Oxford ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

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