Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/223548 
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8476
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
Asset pricing and climate policy are analyzed in a global economy where consumption goods are produced by both a green and a carbon-intensive sector. We allow for endogenous growth and three types of damages from global warming. It is shown that, initially, the desire to diversify assets complements the attempt to mitigate economic damages from climate change. In the longer run, however, a trade-off between diversification and climate action emerges. We derive the optimal carbon price, the equilibrium risk-free rate, and risk premia. Climate disasters, which are more likely to occur sooner as temperature rises, significantly increase risk premia.
Subjects: 
decarbonisation
diversification
carbon price
asset prices
green assets
disaster risk
JEL: 
D81
G01
G12
Q50
Q54
Document Type: 
Working Paper
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