time consistent public policy in this paper we study how a benevolent government that cannot commit to future policy should trade off the costs and benefits of public expenditure we characterize and solve for markov perfect equilibria of the dynamic game between successive governments the characterization consists of an inter temporal first order condition a generalized euler equation for the government and we use it both to gain insight into the nature of the equilibrium and as a basis for computations for a calibrated economy we find that when the only tax base available to the government is capital income an inelastic source of funds at any point in time the government still refrains from taxing at confiscatory rates we also find that when the only tax base is labour income the markov equilibrium features less public expenditure and lower tax rates than the ramsey equilibrium

unequal vulnerability to climate change and the transmission of adverse effects through international trade in this paper we consider the unequal distribution of climate change damages in the world and we examine how the underlying costs can spread from a vulnerable to a non vulnerable country through international trade to focus on such indirect effects we treat this topic in a north south trade overlapping generations model in which the south is vulnerable to the damages entailed by global pollution while the north is not we show that the impact of climate change in the south can be a source of welfare loss for northern consumers in both the short and the long run in the long run an increase in the south s vulnerability can reduce the welfare in the north economy even in the case in which it improves its terms of trade in the short run the south s vulnerability can also represent a source of intergenerational inequity in the north therefore we emphasize the strong economic incentives for non vulnerable and a fortiori less vulnerable economies to reduce the climate change damages on more vulnerable countries

overlapping generations and environmental control abstract this paper sets forth a continuous time olg model in order to analyze intertemporal trade offs in the use of environmental resources this theoretical framework proves to be particularly appropriate in examining the externalities arising from consumer heterogeneity and disconnectedness across generations we characterize the trade off between capital accumulation and the environment and derive the conditions for an optimal fiscal policy the role of government intervention is twofold first it has to achieve intergenerational equity compatibly with a time consistent social welfare criterion second it has to correct the intertemporal market failures due to the selfish behavior of each generation

a country specific point of view on international diversification abstract this paper adds a country specific point of view on diversification among financial markets previous results indicate that emerging markets may generally exhibit higher diversification effects in comparison to developed markets due to lower market linkages however the question remains which markets in particular may be more or less attractive among emerging and developed markets as well as in a world market setting to the best of our knowledge this is the first empirical study which analyzes this question beyond continental levels only we analyze diversification by means of optimal portfolio allocations and in terms of tail risk reductions we also include investors tendency to overweight regional investments home bias our results show that malaysia switzerland jordan chile or singapore are markets with high diversification potential on the contrary argentina brazil and south korea exhibit high individual risk levels in combination with high market linkages

is international diversification really beneficial abstract previous research claims that low constant correlations among international stock indices create substantial risk reduction from diversification we contend that only using constant correlations is too simplistic an approach we examine international diversification by 1 using conditional correlations 2 evaluating tail risk including the effect of skewness and kurtosis and 3 examining the possible tradeoffs of standard deviation with correlation skewness and kurtosis we show that conclusions concerning diversification based solely on constant correlations across markets can be misleading since the diversification benefits are time varying are affected by non normality and depend on the benchmark country employed finally tradeoffs do exist between standard deviation and the other risk factors

environmental tax policy and intergenerational distribution abstract we study the effects of environmental taxation within the context of an overlapping generations model the quality of the environment is modelled as a durable consumption good introduction of the environmental tax harms old existing generations and benefits young existing generations as well as all future generations increasing the tax in a pareto improving manner is easier the higher the pre existing tax the reverse holds if tax policy is decided by majority rule a suitably designed bond policy can be used to redistribute the efficiency gains due to the internalisation of environmental externalities across the generations

sustainability limited substitutability and non constant social discount rates abstract the paper shows how limited substitutability in consumption between different classes of goods affects the magnitude and time development of social discount rates it decomposes the discount rates into an absolute growth and a relative growth or substitutability effect the paper relates between good and intertemporal substitutability to the notions of weak and strong sustainability it analyzes under which circumstances low as opposed to high between good substitutability increases the weights given to long run environmental services

international asset pricing and portfolio diversification with time varying risk we test the conditional capital asset pricing model capm for the world s eight largest equity markets using a parsimonious generalized autoregressive conditional heteroskedasticity garch parameterization our methodology can be applied simultaneously to many assets and at the same time accommodate general dynamics of the conditional moments the evidence supports most of the pricing restrictions of the model but some of the variation in risk adjusted excess returns remains predictable during periods of high interest rates our estimates indicate that although severe market declines are contagious the expected gains from international diversification for a u s investor average 2 11 percent per year and have not significantly declined over the last two decades

intertemporal equilibria and exhaustible resources an overlapping generations approach abstract this paper presents a general equilibrium model of an abstract intertemporal economy with overlapping generations production possibilities and capital investment under the constraint of a nonreproducible natural resource the model provides for institutionally mandated asset transfers between successive generations under the assumption that each generation has perfect foresight concerning future prices and economic conditions competitive exchange supports a multiplicity of pareto efficient equilibria that correspond to particular asset transfer regimes the achievement of a desirable distribution of welfare between present and future generations requires that the asset transfer regime be chosen according to a social welfare function or explicit distributional criterion economic efficiency per se is insufficient to ensure social optimality these results have important implications for resource planning in the real world where policy makers and the public at large are often highly concerned over the potential impacts of current resource utilization on the welfare of future generations

international diversification with frontier markets abstract we provide an analysis of frontier market equities with respect to world market integration and diversification principal component results reveal that frontier markets exhibit low levels of integration in contrast with developed and emerging markets frontier markets offer no indication of increasing integration through time furthermore individual frontier market countries do not exhibit consistent rates of changing integration structural break tests identify breakpoints in integration as well as integration dynamics across countries we show that frontier markets have low integration with the world market and thereby offer significant diversification benefits

the rationality of a safe minimum standard the safe minimum standard sms is a policy shift to safety defaults to forestall irreversible outcomes critics charge an inconsistency what justifies business as usual cannot also justify switching to the sms currently the sms is only a procedural shift where economic optimality procedures are buttressed by extra special focus on uncertainty yet social welfare function may not be complete enough warranting a more fundamental sms shift numerous moral positions support this sms approach this sms also operationalizes the intolerable cost as a trigger point noting societies with lower tolerance for sacrifice must trigger the sms earlier

economics and sustainability balancing trade offs and imperatives the concept of sustainability has been increasingly invoked in scholarly and public policy debates discussion has been hampered however by uncertainty and lack of uniformity in the meaning of sustainability this paper seeks to identify some common ground among economists ecologists and environmen tal ethicists two issues seem salient require ments for intergenerational and the defi nition of social capital to be provided to future generations a concept of safe minimum standard which has received at least some recognition in the ecology philosophy and eco nomics literatures may provide the beginnings of a common ground for debate about sus tainability jel q2

the social cost of carbon emissions seven propositions determining the social cost of carbon emissions scc is a crucial step in the economic analysis of climate change policy as the us government s recent decision to use a range of estimates of the scc centered at 77 tc or equivalently 21 tco2 in cost benefit analyses of proposed emission control legislation underlines this note reviews the welfare economics theory fundamental to the estimation of the scc in both static and intertemporal contexts examining the effects of assumptions about the typical agent s pure rate of time preference and elasticity of marginal felicity of consumption production and mitigation technology and the magnitude of climate change damage on estimates of the scc we high light three key conclusions i an estimate of the scc is conditional on a specific policy scenario the details of which must be made explicit for the estimate to be meaningful ii the social discount rate relevant to intertemporal allocation decisions also depends on the policy scenario and iii the scc is uniquely defined only for policy scenarios that lead to an efficient growth path because marginal costs and benefits of emission mitigation diverge on inefficient growth paths we illustrate these analytical conclusions with simulations of a growth model calibrated to the world economy authors abstract

environmental valuation under sustainable development environmentalism has evolved since the 1960 s from a concern with the preservation of wilderness in the american experience to a concern over pollution of human habitat throughout the industrialized world northern anxiety spread to the loss of tropical rainforests and biodiversity in the south where environmentalism evolved further in an encounter with indigenous interpretations conditions and priorities by the late 1980 s climate change emerged as a central issue in a now global discourse on the relationship between environment and development the principle of sustainable development that current needs are to be met as fully as possible while ensuring that the life opportunities of future generations are undiminished relative to present is now widely accepted this paper illustrates that incorporating environmental values per se in decision making will not bring about sustainability unless each generation is committed to transferring to the next sufficient natural resources and capital assets to make development sustainable 11 refs 3 figs

carbon pricing carbon sequestration and social discounting abstract this paper studies the optimal taxation of carbon emissions in a dynastic economy when the welfare function places direct pareto weights on unborn generations the social discount rate is lower than the discount rate of the current generation i show that this welfare criterion has important consequences for the structure of the optimal regulatory system in particular i show that i the optimal carbon tax does not in general equal the social cost of carbon ii a subsidy on oil reserves is sometimes optimal and iii carbon trading programs should limit the award of carbon offset allowances

carbon tax subsidy policy choice and its effects in the presence of interest groups abstract interest groups such as industry organization public finance and environmental group may exert influences on policy makers when they are choosing environmental policies considering the situation that two countries where a domestic country suffers equal influence and a foreign country suffers different influences from these groups can choose carbon tax policy or carbon subsidy policy then this paper constructs a two staged game model to study how interest groups make differences to environmental policy choices and their impacts on policy level production carbon emission profit and welfare between countries results show that the domestic country will definitely choose carbon tax policy but the foreign country may make different choices furthermore if the foreign country chooses carbon subsidy policy the domestic country will set higher tax rate than the foreign country does but production carbon emission profit and welfare of the domestic country will be lower than those of the foreign country if the foreign country chooses carbon tax policy carbon tax rate production carbon emission profit and welfare are ambiguous between countries

the political economy of environmental policy with overlapping generations a two sector overlapping generations model illuminates the intergenerational effects of a tax that protects an environmental stock a traded asset capitalizes the economic returns to future tax induced environmental improvements benefiting the current asset owners the old generation absent a transfer the tax harms the young generation by decreasing their real wage future generations benefit from the tax induced improvement in environmental stock the principal intergenerational conflict arising from the tax is between generations alive at the time society imposes the policy not between generations alive at different times a pareto improving tax can be implemented under various political economy settings

the political economy of mitigation and adaptation abstract climate policies have very uneven effects in terms of their fiscal impact while mitigation of climate change typically raises revenues adaptation is costly to the taxpayer and the more so the more distortionary the tax system moreover the benefits and costs of mitigation and adaptation vary across generations in an olg model with majority voting we show that even in the absence of international pollution spillovers and strategic considerations neither mitigation nor adaptation can be expected to be set efficiently the reason is that voters have incentives to use climate policy as an instrument for redistribution we find that these incentives depend on the underlying tax system furthermore the chosen mitigation or adaptation level may be inefficiently high in a political equilibrium with a distortionary income tax system although not simultaneously this finding suggests that a distortionary income tax system favors one policy mitigation or adaptation at the expense of the other the calibration of our model to the german economy reveals that both mitigation and adaptation are lower than their socially optimal levels

inefficiency in legislative policymaking a dynamic analysis this paper develops an infinite horizon model of public spending and taxation in which policy decisions are determined by legislative bargaining the policy space incorporates both productive and distributive public spending and distortionary taxation the productive spending is investing in a public good that benefits all citizens e g national defense and the distributive spending is district specific transfers e g pork barrel spending investment in the public good creates a dynamic linkage across policymaking periods the analysis explores the dynamics of legislative policy choices focusing on the efficiency of the steady state level of

balanced budget redistribution as the outcome of political competition this paper models balanced budget redistribution between socio economic groups as the outcome of electoral competition between two political parties equilibrium is unique in the present model and a sufficient condition for existence is given requiring that there be enough stochastic heterogeneity with respect to party preferences in the electorate the validity of hotelling s principle of minimum differentiation and of director s law are examined under alternative hypotheses concerning administrative costs of redistributions and voter s possibilities both of abstaining from voting and of becoming campaign activists for one of the parties the policy strategy of expected plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality incomes are fixed and known so lump sum taxation is feasible however constraints on tax transfer differentiation between individuals are permitted in the analysis

generational welfare under a climate change policy with induced innovation we develop a climate economy model with generational heterogeneity and the potential for climate policy induced technological change we use the model to assess the distributional implications of climate policies and of policy designs which recycle generated revenues to finance research and development r d we model only innovation in the energy generated per unit of fossil fuels so the quantitative results we derive are small our emphasis is on the distributional impacts of redistributing climate policy rents to enhance r d we show that while investments of climate policy rents to accelerate innovation are likely to be welfare improving as long as significant market failures exist they are also likely to exacerbate the distributional inequities created across generations by climate change policies the political feasibility of climate policies may be harmed by rent transfers to r d as these transfers can increase the costs borne by agents alive today while increasing benefits to generations born far into the future

international diversification an extreme value approach abstract international diversification has costs and benefits depending on the degree of asset dependence we study international diversification with two dependence measures correlations and extreme dependence we discover that dependence has typically increased over time and document mixed evidence on heavy tails in individual countries moreover we uncover three additional findings related to dependence first the timing of downside risk differs depending on the region surprisingly recent latin american returns exhibit little downside risk second latin america exhibits a great deal of correlation complexity third according to the empirical results correlation does not vary with returns but extreme dependence does vary monotonically with regional returns our results are consistent with a tradeoff between international diversification and systemic risk they also suggest international limits to diversification and that international investors demand some compensation for joint downside risk during extreme events

competitive equilibria and sustainable growth in a life cycle model with natural resources the purpose of this note is to consider interactions between capital accumulation and natural resource exploitation in diamond s 1965 overlapping generations olg model the presumption in the literature on economic growth under resource constraints e g solow 1974 or stiglitz 1974 is that constant standards of living are possible in the presence of nonreproducible natural resources even in the absence of technical progress provided only that capital and resources are good substitutes in production and society makes sufficient investments in reproducible capital to offset the optimally declining stock of natural resources this literature ignores generation overlap and treats society in each period as a single generation which cares about and also discounts the welfare of its immediate descendants and which has complete control over the rate of resource use and the saving rate whether a sequence of selfish finite lived and interdependent generations interacting via competitive markets will implement these paths is an open question this note introduces a stationary population log linear version of diamond s model in which natural resources are selfreproducible and essential in production and capital depreciates completely after one period in this environment it is technically feasible to achieve growth paths in which the input and the stock of natural resources are constant and in which capital accumulation leads to growth in living standards these paths of resource use can be interpreted as emanating from the normative concept of sustainable development now advocated

trade policy and ecology trade sanctions on product exports are often used as measures for conservation of stocks of living resources two opposing approaches are investigated the harvest approach argues that sanctions reduce the harvest and thus protects the stock it is shown that this does not consider the long run effects nor the effects of sanctions on the management system the investment approach argues that increased price protects the stock making the species a profitable investment it is shown that this approach does not consider the asset effects of price changes and that the sanctions usually increase the stock in an one species analysis if the wildlife competes for land the conclusions may be different but still sanctions usually works if the manager has a joint management of several species the stock effects of sanctions are ambiguous depending on both the species interaction and the profitability of the harvesting from each of them in this case it is not possible to use intuitive reasoning sanctions give distortions to all stocks simultaneously the threat of extinction depends crucially on the unit cost in harvesting of depleted stocks the paper concludes that trade policy is a too general measure for the management of living resources and may implicate important economic distortions to the ecological system

renewable resources in an overlapping generations economy without capital abstract we incorporate a renewable resource into an overlapping generations model without capital and with quasi linear preferences besides being an input for production the resource serves as a store of value we characterize the dynamics efficiency and stability of the steady state equilibria the stability properties are sensitive to the type of resource growth for constant growth there is only one steady state equilibrium which is stable and efficient in the general case of the concave growth function there are usually at least two steady state equilibria one of which is stable and the other one unstable the unstable steady state is efficient but the stable one may or may not be we study the robustness of our results by assuming a logarithmic utility function we show that for the cobb douglas production function the steady state is unique and stable regardless of whether the equilibrium is efficient or inefficient our analytical results are illustrated by numerical calculations

instrument choice and stranded assets in the transition to clean capital abstract this paper compares the impact of different climate mitigation policies mandates feebates performance standards and carbon pricing in a ramsey model with clean and polluting capital irreversible investment and a climate constraint these policy instruments imply different transitions to the same balanced growth path the optimal carbon price minimizes the discounted social cost of the transition to clean capital but may prompt premature retirement of existing polluting capacities and significant private costs in the form of stranded assets second best mandates and feebates affect new investment decisions without providing incentives to under use existing polluting equipment these instruments lead to higher discounted social costs but smoother abatement costs and do not result in premature retirement or stranded assets a phased in carbon price can avoid premature retirement but still result in stranded assets that is in a drop of wealth for the owners of polluting capital we discuss a potential trade off between the political feasibility and cost effectiveness of climate mitigation policies

positive arithmetic of the welfare state abstract this paper argues that social security enjoys wider political support than other welfare programs because i retirees constitute the most homogeneous voting group and ii the intragenerational redistribution component of social security induces low income young to support this system in a dynamically efficient overlapping generation economy with earnings heterogeneity we show that for sufficient income inequality and enough elderly in the population a welfare system composed of a within cohort redistribution scheme and an unfunded social security system represents the political equilibrium of a two dimensional majoritarian election social security is sustained by retirees and low income young while intragenerational redistribution by low income young unlike unidimensional voting model our model suggests that to assess how changes in inequality affect the welfare state the income distribution should be decomposed by age groups

the survival of the welfare state this paper provides an analytical characterization of markov perfect equilibria in a model with repeated voting where agents vote over distortionary income redistribution a key result is that the future constituency for redistributive policies depends positively on current redistribution since this affects both private investments and the future distribution of voters the model features multiple equilibria in some equilibria positive redistribution persists forever in other equilibria even a majority of beneficiaries of redistribution vote strategically so as to induce the end of the welfare state next period skill biased technical change makes the survival of the welfare state less likely

global market integration an alternative measure and its application global markets seem to be increasingly integrated but there is no well accepted measure of integration we show that the correlation across markets is a poor measure perfectly integrated markets can exhibit weak correlation we derive a new integration measure based on the explanatory power of a multi factor model and use it empirically to investigate recent trends in global integration for most countries there has been a marked increase in measured integration over the past three decades but this is not indicated by correlations among country indexes

an overlapping generations model of climate economy interactions a numerically calibrated overlapping generations model of climate change and the world economy is examined in this paper in the absence of intergenerational transfers efficient rates of greenhouse gas emissions abatement rise from 16 in the present to 25 in the long run while mean global temperature increases by 7 40c relative to the preindustrial norm a utilitarian optimum which attaches equal weight to each generation s life cycle utility yields abatement rates that rise from 48 to 89 with a long run temperature increase of 3 40c a second best utilitarian path in which intergenerational transfers are by assumption institutionally infeasible also supports stringent abatement measures i introduction the infinitely lived agent framework pioneered by frank ramsey 1928 has emerged as a central structure in the economics of climate change as characterized by ipcc 1996 working group iii climate change occurs when anthropogenic emissions of greenhouse gases principally carbon dioxide but also chlorofluorocarbons methane nitrous oxide and water vapor contribute to long term increases in mean global temperature potentially disrupting ecological systems and climate dependent production activities the best known study on the economics of this subject is nordhaus 1994 dynamic model of climate and the economy dice which incorporates assumptions regarding the costs and benefits of greenhouse gas emissions in a standard one sector growth model in nordhaus analysis a 50 reduction in greenhouse gas emissions would reduce gross world output by 0 93 a doubling of greenhouse gas concentrations relative to the preindustrial norm which is expected to occur by the middle of the twenty first century would reduce output by

democratic public good provision this paper analyzes an overlapping generation model of redistribution and public good provision under repeated voting expenditures are financed through age dependent taxation that distorts human capital investment taxes redistribute income both across skill groups and across generations we focus on politico economic markov equilibria and contrast these with the ramsey allocation under commitment the model features indeterminate equilibria with a key role of forward looking strategic voting due to the lack of commitment to future policies the tax burden may be on the wrong side of the dynamic laffer curve moreover restrictions on government policies can in some cases be welfare improving

correcting the climate externality pareto improvements across generations and regions many argue that the present generation must reduce consumption to mitigate future climate change however as significant climate change is due to market failure the correction of market failures by definition gives rise to the possibility of pareto improvements in this paper we examine the implications of pareto improvements both within and across generations we employ the representative consumer model rice 10 a global model including different regions to see how we could potentially distribute any benefits across and within generations such that nobody loses the model shows that different combinations of present and future consumption along the pareto improving frontier yield different combinations of capital investment and emissions we also calculate a conventional social optimum while the social optimum by definition is on the pareto efficiency frontier it is not necessarily on the pareto improving segment of this frontier total emissions and hence temperature change vary significantly across different pareto improving scenarios it obviously matters which generations get the utility gain and one of our results is that for pareto improvements where none of the gain goes to the distant future and allowing transfers total emissions will be higher than in the social optimum even without any welfare gain to the distant future total emissions may be lower in the pareto improving scenarios we have considered than under the social optimum if transfers are not permitted moreover in this case carbon taxes differ substantially across regions for all pareto improvements

resolving intergenerational conflict over the environment under the pareto criterion 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

harvesting and conserving a species when numbers are low population viability and gambler s ruin in bioeconomic models abstract in bioeconomic models of renewable resources population viability is either ignored entirely or the minimum viable population mvp is considered a crisp threshold below which a species is driven to extinction neither is consistent with ecological science the purpose in this paper is firstly to enhance ecological realism in economic models by incorporating insights regarding population viability from conservation biology we consider the effects of chance on optimal management and briefly discuss key results regarding population viability as derived by biologists second as a means to balance interests and morality we suggest a fuzzy compromise between the economist s and the biologist s preferred stock sizes

the opportunity cost of climate policy aquestion of reference the cost of climate policy depends on the no policy alternative without which the opportunity cost of climate action cannot be determined this reference path has to reflect the current failure in the market for carbon emissions due to a negative externality private investment decisions do not consider the climate damage they entail agents overinvest in conventional capital and underinvest in climate capital internalization of climate damage lowers the private return to capital agents reduce investment in favor of mitigation and consumption optimal climate mitigation increases welfare of the present and the future simulation of the inefficient no policy scenario in dice 07 confirms that this point numerically author s abstract

the dynamics of government abstract we model income redistribution with dynamic distortions as determined by rational voting without commitment among individuals of different types and income realizations we find that redistribution is too persistent relative to that chosen by a planner with commitment the difference is larger the lower is the political influence of young agents the lower is the altruistic concern for future generations and the lower is risk aversion furthermore there tends to be too much redistribution in the political equilibrium finally smooth preference aggregation as under probabilistic voting produces less persistence and does not admit multiple equilibria which occur under majority voting aggregation

international diversification a copula approach abstract the viability of international diversification involves balancing benefits and costs this balance hinges on the degree of asset dependence in light of theoretical research linking diversification and dependence we examine international diversification using two measures of dependence correlations and copulas we document several findings first dependence has increased over time second we find evidence of asymmetric dependence or downside risk in latin america but less in the g5 the results indicate very little downside risk in east asia third east asian and latin american returns exhibit some correlation complexity interestingly the regions with maximal dependence or worst diversification do not command large returns our results suggest international limits to diversification they are also consistent with a possible tradeoff between international diversification and systemic risk

conservationist government policies and intergenerational equity in an overlapping generations model with renewable resources abstract this paper shows that in overlapping generations models incorporating renewable natural resources competition may lead to perpetually declining living standards in environments in which it is technically feasible to achieve intergenerationally equitable distributions of consumption first and second best conservationist government policies are examined these include forced nationalization of the entire stock of natural capital government open market purchases and sales of natural capital taxation of industrial use of resources and subsidies to private investments in natural capital

a review of the stern review on the economics of climate change how much and how fast should we react to the threat of global warming the stern review argues that the damages from climate change are large and that nations should undertake sharp and immediate reductions in greenhouse gas emissions an examination of the review s radical revision of the economics of climate change finds however that it depends decisively on the assumption of a near zero time discount rate combined with a specific utility function the review s unambiguous conclusions about the need for extreme immediate action will not survive the substitution of assumptions that are consistent with today s marketplace real interest rates and savings rates

an overlapping generations model of growth and the environment this article analyzes the potential conflict between economic growth and the maintenance of environmental quality in an overlapping generations model short lived individuals make decisions which have long lasting effects on both factor productivity and the environment the model provides a theoretical explanation of observed correlations between environmental quality and income whereby economic growth is associated first with declines then improvements in environmental quality it suggests circumstances in which multiple pareto ranked steady state equilibria may arise and in which sustained growth of both capital and environmental quality may occur overmaintenance of the environment analogous to dynamically inefficient overaccumulation of capital may emerge copyright 1994 by royal economic society

intergenerational resource rights efficiency and social optimality the discipline of economics is generally defined as the science of the allocation of scarce resources between competing social objectives given an initial distribution of resources between economic agents how would they behave so as to improve their welfare according to the pareto criterion the agents would exchange commodities until the opportunities for fruitful exchange were fully exhausted and no agent could be made better off without rendering at least one other agent worse off pareto efficiency is a powerful concept in microeconomic analysis provided that the initial distribution of property rights is equitable allocative efficiency gives rise to the best of all possible worlds acknowledging that the assumptions of perfect competition are often violated firms are monopolistic information is incomplete and externalities exist economists have argued for the modification of institutions so that economic reality will conform more closely to the assumptions of the model that yields such gratifying results but microeconomic theory has always maintained that allocative efficiency is in itself insufficient to maximize social welfare bator 1957 a social welfare function is required to discriminate a social optimum among the array of efficient allocations that correspond to alternative assignments of property rights though economists have posited alternative functional forms for the sake of pursuing conceptual arguments welfare functions have remained elusive constructs for well known theoretical and practical reasons consequently a sharp line of demarcation has been drawn between questions of efficiency the province of economics and equity the principal focus of ethical and political discourse in resource economics however the line demarcating efficiency and equity is often crossed the term optimal depletion appears regularly where only efficient depletion is meant while political debates about resource exploitation over time are laden with questions of the proper distribution of our natural patrimony between generations resource economists have predominantly espoused particular use rules that guarantee efficiency but overlook potential improvements in social welfare achievable through the reassignment of property rights across generations we document the evolution and current status of the misuse of the term optimal depletion in section ii we develop a simple two generation three period general equilibrium model in section iii to illustrate how alternative distributions of resource rights between generations relate to alternative pareto efficient solutions in section iv we demonstrate how different social welfare functions affect the optimal solution and associated assignment of resource rights between generations

trade tragedy and the commons we develop a theory of resource management where the degree to which coun tries escape the tragedy of the commons and hence the de facto property rights regime is endogenously determined three forces determine success or failure in resource management the regulator s enforcement power the extent of har vesting capacity and the ability of the resource to generate competitive returns without being extinguished the model can explain heterogeneity across coun tries and resources in the effectiveness of resource management and it predicts that changes in prices population and technology can cause transitions to better or worse management regimes jel p14 q21 q22 q23 q32 many of the world s major renewable resource stocks are in a state of decline this is true for capture fisheries for forests in developing countries and for many measures of the biosphere s health other renewable resources including many species of wildlife marine mammals and coral reefs are also under threat while poverty and government corruption are surely respon sible for some of this record particular emphasis is often placed on the potentially damaging role played by international trade this emphasis is not surprising given that natural resource products are a key export for much of the developing world and property rights over renewable resources are both difficult to define and poorly enforced but property rights are not an immutable country characteristic such as weather mineral deposits or topography they are instead market institutions developed to facilitate transactions and protect scarce resources consequently changes in prices technology and other effects of market integration may alter the de facto property rights regime and lead to impacts quite dif ferent from those predicted by existing analyses the purpose of this paper is to examine renew able resource use within a framework where the enforcement of property rights and hence the efficacy of resource management is endogenously determined we develop a theory where an existing government regulates the use of a renewable resource by a set of agents who have a right to harvest the resource could be a fishery forest stock aquifer etc and we assume it is local and therefore contained within one country the govern ment sets rules limiting harvests but agents may cheat on these allocations and risk punishment property rights are endogenous in this framework because the government must account for agents incentive to cheat as a result the effective protection for the resource or what we refer to as the de facto property rights regime may be far from perfect even though property rights would be perfectly enforced if there was no monitoring problem

mean variance convergence around the world abstract in this paper we show i that the risk return characteristics of our sample of 17 developed stock markets of the world have converged significantly toward each other during our study period 1974 2007 and ii that this international convergence in risk return characteristics is driven mainly by the declining country effect rather than the rising industry effect suggesting that the convergence is associated with international market integration specifically we first compute the risk return distance among international stock markets based on the euclidean distance and find that the distance thus computed has been decreasing significantly over time implying a mean variance convergence in particular the average risk return distance has decreased by about 50 over our sample period we also document that the risk return characteristics of our sample of 14 emerging markets have been converging rapidly toward those of developed markets in recent years this development notwithstanding emerging markets still remain as a distinct asset class lastly we show that the convergence in risk return characteristics has exerted a negative impact on the efficiency of international investment during our sample period

self enforcing intergenerational social contracts for pareto improving pollution mitigation we consider in an overlapping generations model with an environmental externality a scheme of contracts between any two successive generations under each contract agents of the young generation invest a share of their labor income in pollution mitigation in exchange for a transfer in the second period of their lives the transfer is financed in a pay as you go manner by the next young generation different from previous work we assume that the transfer is granted as a subsidy to capital income rather than lump sum we show that the existence of a contract which is pareto improving over the situation without contract for any two generations requires a sufficiently high level of income in a steady state with social contracts in each period the pollution stock is lower compared to a steady state without contracts analytical and numerical analysis of the dynamics under nash bargaining suggests that under reasonable conditions also steady state income and welfare are higher delaying the implementation of a social contract for too long or imposing a contract with too low mitigation can be costly net income may inevitably fall below the threshold in finite time so that pareto improving mitigation is no longer possible and the economy converges to a steady state with high pollution stock and low income and welfare in the second part of the paper we study a game theoretic setup taking into account that credibly committing to a contract might not be possible we show that with transfers granted as a subsidy to capital income there exist mitigation transfer schemes which are both pareto improving and give no generation an incentive to deviate from any of its contracts even in a dynamically efficient economy social contracts coexist with private savings

trading off generations equity discounting and climate change the prevailing literature discusses intergenerational trade offs in climate change predominantly in terms of the ramsey equation relying on the infinitely lived agent model we discuss these trade offs in a continuous time olg framework and relate our results to the infinitely lived agent setting we identify three shortcomings of the latter first underlying normative assumptions about social preferences cannot be deduced unambiguously second the distribution among generations living at the same time cannot be captured third the optimal solution may not be implementable in overlapping generations market economies