Seminario Generational Welfare in an A-OLG-IAM

Abstract

Due to the climate externality, current generations might experience high welfare at the cost of lower welfare for future generations. Within this paper’s analytical integrated assessment model (A-IAM) with overlapping generations (OLG) and climate damages, we develop the concept of Generational Welfare. It aggregates welfare, where the welfare weights of different generations are derived from market behavior in a distorted market economy that does not internalize the climate externality. It provides the basis for sustainability accounting and for the social cost of carbon (SCC). We solve analytically for welfare dynamics and SCC.