An OLG model approach to climate change with intergenerational concern and Game Theory

Abstract

Udalov 2014 extended a collective goods problem through an Overlapping Generations Model where there is a decision regarding the type of energy use either fossil fuel versus renewable use energy Udalov introduced a politico economic equilibrium contingent on the effort or commitment on renewable energy We provide his framework but further extended it, by using an eta parameter which provides intergenerational concern among different generations, old versus youngsters We depart from non existent Udalov non concern of intergenerational generations, and extend it to use a parameter eta which reflects this concern We further provide a game, in the sense of game theory, where the politico economic equilibrium is contingent on the intergenerational concern, which reflects strategic interaction among youngsters and old people Some politico economic results at hand As higher intergenerational concern eta parameter a tribute to Stern’s 2004 report the faster the pace of recuperation of a global common good the lower level of pollution and politico economic equilibria recovers the fastest ( the investment in renewable energy