Learn More
We embed a simple linear model of the carbon cycle in a standard neoclassical growth model where one input to the production function, oil, is non-renewable. The use of oil generates carbon emission, the key input in the carbon cycle. Changes in the amount of carbon in the atmosphere drive the greenhouse e¤ect and thereby the climate. Climate change is(More)
Can variations in risk cause non-negligible fluctuations in the flow of investment? This issue has so far only been studied in models with a fixed level of risk. Comparative statics may be inadequate, since risk varies over time. In this paper, a simple irreversible investment model is extended by including a stochastic process for the risk level. An(More)
1 We analyze a dynamic stochastic general-equilibrium (DSGE) model with an externality—through climate change—from using fossil energy. Our central result is a simple formula for the marginal externality damage of emissions (or, equivalently, for the optimal carbon tax). This formula, which holds under quite plausible assumptions, reveals that the damage is(More)
We estimate an aggregate production function with constant elasticity of substitution between energy and a capital/labor composite using U.S. data. The implied measure of energy-saving technical change appears to respond strongly to the oil-price shocks in the 1970s and has a negative medium-run correlation with capital/labor-saving technical change. Our(More)
Preliminary Abstract A rationale for a compulsory pension system is that the government wants to correct supposedly myopic behavior by the individuals. Given the existence of such a system, we calculate the optimal relation between marginal contributions and benefits, i.e., the optimal degree of marginal actuarial fairness, as seen from the point of view of(More)
This paper offers an overview of the links between risk and consumption that are discussed in the theoretical literature and the empirical support these theories have received. In the theoretical literature we find two mechanisms whereby risk affects consumption. The first is precautionary saving. Greater risk regarding future income may lead to increased(More)
This paper provides an analytical characterization of Markov perfect equilibria in a model with repeated voting, where agents vote over distortionary income redistribution. A key result is that the future constituency for redistributive policies depends positively on current redistribution, since this a¤ects both private investments and the future(More)
for helpful comments. The opinions expressed herein are those of the author(s) and do not necessarily represent those of the European Central Bank. This paper can be downloaded without charge from Fax +49 69 1344 6000 Telex 411 144 ecb d All rights reserved by the author/s. Reproduction for educational and non-commercial purposes is permitted provided that(More)
KTI/IE Discussion Papers are circulated to promote discussion and provoke comments. Any references to discussion papers should clearly state that the paper is preliminary. Materials published in this series may be subject to further publication. Abstract The paper investigates the role of the minimum wage in a competitive economy in which there is(More)