Long-term Environmental Problems and Strategic Intergenerational Transfers

The impacts of long-lived stock pollutants and the abatement and technology measures supposed to address them link current and future generations together. Altruism towards successor generations is a prerequisite for resolving the resulting intergenerational equity issues. Preference asymmetry and typical imperfections of altruism, however, introduce the possibility of important strategic conficts between generations. We develop a simple model highlighting the presence and nature of strategic distortions in addressing intergenerational environmental problems. The current generation decides on a combination of abatement and technologyenabling investment leading to an imperfect backstop technology. The future generation decides whether to use the backstop or not. We identify three possible outcomes: (1) Technology denial, in which the current generation deliberately rejects the imperfect backstop in anticipation that the future generation will use the technology in an undesired way. (2) Underabatement, in which the current generation provides the backstop to the future generation but reduces abatement activities; and (3) Overabatement, in which the current generation provides the backstop to the future generation but reduces abatement activities. The outcome depends non-trivially on the environmental preferences of the future generation. Uncertainty over future preferences renders technology denial more likely. Timo Goeschl Heidelberg University Bergheimer Str. 20 69115 Heidelberg [email protected] Daniel Heyen Heidelberg University Bergheimer Str. 20 69115 Heidelberg [email protected] Juan Moreno-Cruz Georgia Institute of Technology 221 Bobby Dodd Way, Atlanta, GA 30332 [email protected] Long-term environmental problems and strategic intergenerational transfers Timo Goeschl∗ Department of Economics Heidelberg University Daniel Heyen Department of Economics Heidelberg University Juan Moreno-Cruz Department of Economics and EESG University of Calgary