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Non-cooperative and Cooperative Responses to Climate Catastrophes in the Global Economy: A North–South Perspective

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  • Frederick Ploeg

    (University of Oxford
    VU University Amsterdam
    St. Petersburg State University)

  • Aart Zeeuw

    (Tilburg University
    Beijer Institute of Ecological Economics)

Abstract

The optimal response to a potential productivity shock which becomes more imminent with global warming is to have carbon taxes to curb the risk of a calamity and to accumulate precautionary capital to facilitate smoothing of consumption. This paper investigates how differences between regions in terms of their vulnerability to climate change and their stage of development affect the cooperative and non-cooperative responses to this aspect of climate change. It is shown that the cooperative response to these stochastic tipping points requires converging carbon taxes for developing and developed regions. The non-cooperative response leads to a bit more precautionary saving and diverging carbon taxes. We illustrate the various outcomes with a simple stylized North–South model of the global economy.

Suggested Citation

  • Frederick Ploeg & Aart Zeeuw, 2016. "Non-cooperative and Cooperative Responses to Climate Catastrophes in the Global Economy: A North–South Perspective," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(3), pages 519-540, November.
    • Handle: RePEc:kap:enreec:v:65:y:2016:i:3:d:10.1007_s10640-016-0037-z
    DOI: 10.1007/s10640-016-0037-z
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    Cited by:

    1. Frederick Ploeg & Aart Zeeuw, 2019. "Pricing Carbon and Adjusting Capital to Fend Off Climate Catastrophes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 72(1), pages 29-50, January.
    2. Yongyang Cai & William Brock & Anastasios Xepapadeas, 2023. "Climate Change Impact on Economic Growth: Regional Climate Policy under Cooperation and Noncooperation," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(3), pages 569-605.
    3. Yongyang Cai & William Brock & Anastasios Xepapadeas & Kenneth Judd, 2018. "Climate Policy under Cooperation and Competition between Regions with Spatial Heat Transport," DEOS Working Papers 1806, Athens University of Economics and Business.
    4. Zeeuw, Aart de, 2024. "Climate change, tipping points, and economics," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 109(C).
    5. van der Ploeg, Frederick, 2018. "Political economy of dynamic resource wars," Journal of Environmental Economics and Management, Elsevier, vol. 92(C), pages 765-782.
    6. Jaakkola, Niko & van der Ploeg, Frederick, 2019. "Non-cooperative and cooperative climate policies with anticipated breakthrough technology," Journal of Environmental Economics and Management, Elsevier, vol. 97(C), pages 42-66.
    7. Wagener, Florian & de Zeeuw, Aart, 2021. "Stable partial cooperation in managing systems with tipping points," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    8. Yongyang Cai & William Brock & Anastasios Xepapadeas & Kenneth Judd, 2019. "Climate Policy under Spatial Heat Transport: Cooperative and Noncooperative Regional Outcomes," Papers 1909.04009, arXiv.org.
    9. Anastasios Xepapadeas, 2022. "On the optimal management of environmental stock externalities," Proceedings of the National Academy of Sciences, Proceedings of the National Academy of Sciences, vol. 119(24), pages 2202679119-, June.
    10. Ben J. Heijdra & Pim Heijnen, 2021. "Reversible Environmental Catastrophes with Disconnected Generations," De Economist, Springer, vol. 169(2), pages 211-252, May.
    11. Hambel, Christoph & Kraft, Holger & Schwartz, Eduardo, 2021. "The social cost of carbon in a non-cooperative world," Journal of International Economics, Elsevier, vol. 131(C).
    12. Richard S.J. Tol, 2021. "Estimates of the social cost of carbon have not changed over time," Working Paper Series 0821, Department of Economics, University of Sussex Business School.
    13. Nkuiya, Bruno, 2020. "Tradeoffs between costly capacity investment and risk of regime shift," Economic Modelling, Elsevier, vol. 91(C), pages 117-127.
    14. Richard S. J. Tol, 2021. "Estimates of the social cost of carbon have increased over time," Papers 2105.03656, arXiv.org, revised Aug 2022.
    15. Liu, Xin & Zhu, Lei & Zhang, Xiao-Bing & Hennlock, Magnus, 2017. "Self-Enforcing International Environmental Agreements: The Role of Climate Tipping," EfD Discussion Paper 17-12, Environment for Development, University of Gothenburg.

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    More about this item

    Keywords

    Global warming; Tipping point; Precautionary capital; Growth; Risk avoidance; Carbon tax; Free riding; International cooperation; Asymmetries;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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