Global Warming and Economic Externalities

Rezai, Armon and Foley, Duncan K. and Taylor, Lance (2012) Global Warming and Economic Externalities. Economic Theory, 49 (2). pp. 329-351. ISSN 0938-2259


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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.

Item Type: Article
Additional Information: To see the final version of this paper please visit the publisher's website : The original publication is available at Access to the published version requires a subscription.
Keywords: global warming / growth with negative externalities / optimal economic growth
Classification Codes: JEL D62, O41, Q54
Divisions: Departments > Sozioökonomie > Multi-Level Governance and Development
Version of the Document: Accepted for Publication
Variance from Published Version: Minor
Depositing User: Dissertation Administrator
Date Deposited: 28 Mar 2011 10:38
Last Modified: 16 Sep 2017 14:05
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