Climate Change and Event Uncertainty in a Dynamic Model with Overlapping Generations
Roberto Tamborini, Michele Moretto
Global Warming,Event Uncertainty,Overlapping Generations
Climate Change and Sustainable Development
In this paper the climate change effect is an unforeseen earth temperature level above which a negative externality on technology and hence on society’s welfare is exerted. We use a dynamic overlapping generations model to develop a positive analysis of the growth path of an economy with the negative temperature spillover leading to a structural breakdown in capital productivity. Two scenarios for the impact of climate change on intergenerational equity are analyzed: the first is consistent with a state-of-nature framework in which atomistic agents cannot influence the probability that a particular event (productivity collapse) will occur. In the second, according to the maxim “that everybody does what I am doing…«, agents recognize that their choices may influence the probability of productivity collapse occurring in their lifetime.