Title

Resolving intergenerational conflict over the environment under the Pareto criterion

Campus Units

Economics

Document Type

Article

Publication Version

Submitted Manuscript

Publication Date

3-2020

Journal or Book Title

Journal of Environmental Economics and Management

Volume

100

First Page or Article ID Number

102290

DOI

10.1016/j.jeem.2019.102290

Abstract

Climate change policies create intergenerational winners and losers because the costs come first and the benefits later. In such cases, Kaldor-Hicks cost-benefit analysis seeks potential Pareto-improvements by showing the hypothetical potential for the winners to compensate the losers via lump-sum transfers. In their absence, once a costly climate policy is actually implemented, it unleashes distortions and general-equilibrium effects rendering unclear whether Kaldor-Hicks potential improvements lead to actual improvements. We study policies which, once implemented, would pass the Pareto test that no generation subsequent to policy action be made worse off than before. We develop a stylized climate-economy model in which production by the current generation generates pollution which “damages” production for future generations. Over time, the business-as-usual (BAU) economy gets increasingly polluted, consumption falls, and generational welfare levels decline. A government introduces costly pollution abatement and finances it via distorting taxes and the sale of debt (“green bonds”). Pollution levels start to decline, generating downstream welfare gains which may be taxed – without hurting anyone, in a Pareto sense – to help finance the policy and pay off the debt. Along the transition, every generation faces less pollution, consumes more and is happier than if life had continued in the BAU world.

JEL Classification

O44, Q56, H5

Comments

This is a working paper of an article published as Andersen, Torben M., Joydeep Bhattacharya, and Pan Liu. "Resolving intergenerational conflict over the environment under the Pareto criterion." Journal of Environmental Economics and Management (2019): 102290. doi: 10.1016/j.jeem.2019.102290. Posted with permission.

Copyright Owner

Elsevier Inc.

Language

en

File Format

application/pdf

Published Version

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