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Environmental and Resource Economics

, Volume 65, Issue 3, pp 519–540 | Cite as

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

  • Frederick van der PloegEmail author
  • Aart de Zeeuw
Article

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.

Keywords

Global warming Tipping point Precautionary capital Growth Risk avoidance Carbon tax Free riding International cooperation Asymmetries 

JEL Classification

D81 H20 O40 Q31 Q38 

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Copyright information

© Springer Science+Business Media Dordrecht 2016

Authors and Affiliations

  1. 1.Department of Economics, OXCARREUniversity of OxfordOxfordUK
  2. 2.VU University AmsterdamAmsterdamThe Netherlands
  3. 3.Laboratory Economic Performance and the EnvironmentSt. Petersburg State UniversitySt. PetersburgRussia
  4. 4.CentER and TSCTilburg UniversityTilburgThe Netherlands
  5. 5.Beijer Institute of Ecological EconomicsStockholmSweden

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