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An Intergenerational Cost-Benefit Analysis of Climate Change

  • Author(s): Kavuncu, Yusuf Okan
  • Knabb, Shawn D.
  • et al.
Abstract

This paper examines the intergenerational costs and benefts of environmental regulation in the context of climate change. We believe this issue has not been adequately addressed in comparison with the search for efficiency-induced outcomes in the relevant literature. The cost-benefit analysis employs a decentralized two-period overlapping generations framework based on the standard assumptions of the integrated assessment models. This structure allows us to capture realistic market imperfections arising from individual heterogeneity and productive activities across generations. On the policy front, we assume that the Kyoto Protocol, which is the most prominent global initiative, is strictly binding. Our results from numerical simulations indicate that the emissions stabilization policy is costly with some unpleasant implications for current and near future generations. The benefits of the Protocol will not be likely to appear for a long period oftime. Yet, the more detrimental the environmental deterioration is, the sooner the net benefit of stabilization policy will be.

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