Resolving Intergenerational Conflict Over the Environment Under the Pareto Criterion

38 Pages Posted: 12 Oct 2016

See all articles by Torben M. Andersen

Torben M. Andersen

University of Aarhus - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Joydeep Bhattacharya

Iowa State University - Department of Economics

Pan Liu

Beijing Normal University (BNU) - School of Economics and Business Administration

Date Written: August 17, 2016

Abstract

We describe a “business as usual” (BAU) economy in which pollution is a by-product of productive activity by the current generation but “damages” production for future generations. Over time, conditions in the BAU economy become dire: it gets increasingly polluted, consumption falls and generational welfare levels decline. A government introduces costly pollution abatement and finances it via distorting taxes and borrowing on perfect international markets. Pollution levels start to decline, generating downstream welfare gains, some of which the government taxes away, without hurting anyone, to help pay off the debt, that too, in finite time. Along the transition, every generation faces less pollution, consumes more and is happier than if life had continued in the BAU world.

Keywords: pollution, abatement, debt, environmental policy, Pareto criterion

JEL Classification: O440, Q560, H500

Suggested Citation

Andersen, Torben M. and Bhattacharya, Joydeep and Liu, Pan, Resolving Intergenerational Conflict Over the Environment Under the Pareto Criterion (August 17, 2016). CESifo Working Paper Series No. 6053, Available at SSRN: https://ssrn.com/abstract=2851346

Torben M. Andersen (Contact Author)

University of Aarhus - Department of Economics ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Centre for Economic Policy Research (CEPR)

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United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
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Joydeep Bhattacharya

Iowa State University - Department of Economics ( email )

260 Heady Hall
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United States
515-294-5886 (Phone)
515-294-0221 (Fax)

Pan Liu

Beijing Normal University (BNU) - School of Economics and Business Administration ( email )

No.19 Xinwai Str
Haidian District
Beijing, 100875
China

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