Documents Groom, Ben 3 results

"We distinguish between local problems of biodiversity loss and global ones, where international cooperation is required. Global biodiversity regulation involves choosing the optimal stopping rule regarding global land conversions, in order to ensure that some areas of unconverted natural reserves remain to support the production sector that exists on converted lands. The basic difficulty with implementing a solution to this global problem lies in the asymmetry in endowments between those states that have previously converted, and those that have not. We demonstrate that the fundamental problem of global biodiversity regulation is similar to the bargaining problem analysed by Nash, Rubinstein, and others. There are benefits from global land conversion, and there must be agreement on their distribution before the conversion process can be halted. Since the institutions addressing global biodiversity problems are either highly ineffectual (benefit-sharing agreements, prior informed-consent clauses) or very extreme (incremental cost contracts), the biodiversity bargaining problem remains unresolved. For this reason we anticipate that suboptimal conversions will continue to occur, as a way of protesting the ineffective and unfair approaches employed in addressing this problem to date."

"A formula is derived for the social cost of carbon (SCC) that takes account of intragenerational income inequality and its evolution with economic growth. The social discount rate (SDR) should be adjusted to account for intragenerational and intergenerational inequality aversion and for risk aversion. If growth increases (reduces) intra-generational inequality, the SDR is lower (higher) and the SCC higher (lower) than along an inequality-neutral growth path, especially if intra-generational and intergenerational inequality aversion are higher. The same qualitative result is shown for two welfare specifications, one with a representative agent with equally distributed equivalent (EDE) income and the other considers individuals separately across the income distribution. The latter specification causes an additional impact of income inequality on the SDR and SCC because individuals are compared both within and between time periods. Our preferred EDE calibration to a scenario in which global intragenerational inequality declines over time, leads to a SCC in 2020 of $70/tCO2 compared to a value of $85/tCO2 without the effect of inequality."

"The ‘social cost of carbon' (SCC) – or the costs of climate change to the economy and society – is sensitive to the Social Discount Rate (SDR). The SDR contains a wealth effect and so is higher (SCC lower) if there is growth in per capita incomes. Current estimates of the SCC and SDR therefore ignore intra-generational income inequality and the fact that, despite increases in per capita income, many people in society are not getting richer: there is no wealth effect for large sections of society. Inequality and our aversion to it as a society therefore has potentially important implications for the SDR and hence the SCC. This paper investigates just how important intrageneration inequality is for the SCC, compared to intergenerational inequality and macroeconomic uncertainty.

The authors present a tractable formula for the SCC, taking account of intragenerational income inequality, economic uncertainty and economic growth. They adjust the social discount rate so that it takes into account intragenerational fairness and show that if economic growth reduces intragenerational inequality, the SCC is lower than with inequality-neutral growth, especially if there is a significant effort to reduce intra- and intergenerational inequality. The opposite is true if income inequality in increasing.

Calibrated to the observed interest rate and risk premium, the authors calculate the SCC in 2020 at $125 per tonne of carbon dioxide (tCO2) without considering intragenerational inequality, $81/tCO2 if intragenerational inequality decreases over time – as in the Shared Socioeconomic Pathway (SSP) 2, and $213/tCO2 if inequality increases (SSP4). Taking account of changes in intra-generation inequality can be as important for the SCC as the uncertainty associated with rare economic disasters (e.g. major recessions)"