Quotation Rezai, Armon, Foley, Duncan, Taylor, Lance. 2012. Global Warming and Economic Externalities. Economic Theory 49 (2), 329-351.




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.


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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Economic Theory
Citation Index SSCI
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, VW-B, WH-B
Language English
Title Global Warming and Economic Externalities
Volume 49
Number 2
Year 2012
Page from 329
Page to 351
Reviewed? Y
URL http://link.springer.com/article/10.1007/s00199-010-0592-4
DOI http://dx.doi.org/10.1007/s00199-010-0592-4


Rezai, Armon (Details)
Foley, Duncan (New School for Social Research, United States/USA)
Taylor, Lance (New School for Social Research, United States/USA)
Institute for Multi-Level Governance and Development IN (Details)
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