@article{Lugovoy:332315,
      recid = {332315},
      author = {Lugovoy, Oleg and Polbin, Andrey},
      title = {Optimal Emissions Reduction in ILA and OLG versions of  RICE Model},
      address = {2013},
      pages = {19},
      year = {2013},
      note = {Presented at the 16th Annual Conference on Global Economic  Analysis, Shanghai, China},
      abstract = {Conclusions about the optimal reduction of greenhouse gas  emissions are substantially dependent on discount rates,  under which costs benefits analyses are evaluated. There is  the international debate about appropriate discounting in  policy analyses. If the future benefits discounted at a  rate compatible with market real interest rates, the  optimal reduction of GHG’s emissions should be moderate in  the early period with more aggressive emission cuts later.  But the use of high discount rates is inconsistent with  classical utilitarianism, which holds that equal weight  should be attached to the welfare of present and future  generations. If the future benefits discounted at a low  rate in the infinitely-lived agent framework, there should  be the extreme immediate actions in emission reduction. But  this assumption is not compatible with today’s real returns  on capital and saving rates. In this paper we introduce an  overlapping generation framework with seven generations in  the RICE model of William D. Nordhaus. We consider  competitive equilibrium where “global” government follows  Ramsey type optimal policy and set emissions control rates  maximizing utilitarian welfare function treating all  generation in all regions equally. As we consider  competitive equilibrium we avoid Negishi weighting and  could specify and solve the model in a more natural way.  The model provides two discount rates: the social planner  discount rate under which costs benefits analyses of  climate projects are evaluated and the market discount rate  for investments in physical capital. By distinguishing the  two discount rates it is possible to give each generation  equal consideration while still allowing for individual  impatience. So this framework is a natural way to separate  equity and efficiency. Regional specification of the model  allows us to investigate regional-specific policies and to  analyze welfare gains and loses of different generations in  different regions along optimal emissions reduction path in  comparison to alternative policies. Under plausible  calibration simulation results of the model indicate to a  more radical global emissions reduction than in the  original RICE model. Emissions control rates are very  different across regions. Major beneficiaries from the  RICE-OLG optimal policy are generations to be born in the  poor countries in the next century.},
      url = {http://ageconsearch.umn.edu/record/332315},
}