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Asset Prices and Climate Policy

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  • Larry Karp

    (UC Berkeley)

  • Armon Rezai

    (WU Vienna University of Economics and Bu)

Abstract

People might reduce carbon emissions to protect themselves, their wealth, or future generations from climate damage. An overlapping generations climate model with endogenous asset price and investment levels disentangles these incentives. Asset markets capitalize the future effects of policy, regardless of people’s concern for future generations. These markets can lead self-interested agents to undertake significant abatement. A small climate policy that raises the price of capital increases old agents’ welfare and also increases welfare of young agents with a high intertemporal elasticity of substitution. Climate policy can also have subtle distributional effects across the currently living generations.

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  • Larry Karp & Armon Rezai, 2018. "Asset Prices and Climate Policy," 2018 Meeting Papers 595, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:595
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    3. Chen, Zhuo & Liu, Jinyu & Lu, Andrea & Tao, Libin, 2024. "Carbon dioxide and asset pricing: Evidence from international stock markets," Journal of Empirical Finance, Elsevier, vol. 75(C).

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