Welfare specifications and optimal control of climate change: An application of fund

Tol, Richard S J (2002) Welfare specifications and optimal control of climate change: An application of fund. Energy Economics, 24 (4). pp. 367-376. ISSN 0140-9883

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Abstract

The sensitivity of the optimal control of carbon dioxide emissions to the specification of the social welfare function is systematically explored using the FUND model. Increasing risk aversion emphasises climate change damages relative to emission reduction costs, but at the same time increases the discount rate of consumption. Without international co-operation, the discount rate effect dominates so that optimal control decreases with increasing risk aversion. With international co-operation, optimal control first increases then decreases with increasing risk aversion. Since climate change falls heaviest on the poor, optimal control increases with increasing inequity aversion. Full-fledged intergenerational welfare functions on the one hand emphasise climate change damages but on the other hand place more weight on current, poorer generations. In FUND, the two tendencies almost cancel.

Item Type: Article
Schools and Departments: School of Business, Management and Economics > Economics
Subjects: G Geography. Anthropology. Recreation > GE Environmental Sciences > GE170 Environmental policy
H Social Sciences > HB Economic theory. Demography
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Depositing User: Richard Tol
Date Deposited: 18 Apr 2012 09:10
Last Modified: 18 Apr 2012 09:10
URI: http://sro.sussex.ac.uk/id/eprint/38366
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