Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/64205
Authors: 
Davis, Leila
Skott, Peter
Year of Publication: 
2011
Series/Report no.: 
Working Paper, University of Massachusetts, Department of Economics 2011-24
Abstract: 
The economic analysis of global warming is dominated by models based on optimal growth theory. This approach can generate biases in the presence of positional goods and status effects. We show that by ignoring these direct consumption externalities, integrated assessment models overestimate the social return to conventional investment and underestimate the optimal amount of investment in mitigation. Empirical evidence on the influence of relative consumption on utility suggests that the bias could be quantitatively significant. Our results from a simple survey support this conclusion.
Subjects: 
representative agent
consumption externalities
positional goods
relative consumption
welfare
global warming
discount rates
JEL: 
Q13
I3
E1
Document Type: 
Working Paper

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