On May 23rd Chuan-Zhong Li presented a paper entitled "Economic Growth and Social Welfare with Global Environmental Thresholds" co-authored with Haishan Yu.
Over the last 100 years economic growth has led to improved human standard of living couples with an improved life expectancy and a rise in industrial output per capita consumption by over 10 times. Such a remarkable progress in growth with its positive consequences on standard of living and life expectancy also generate detrimental impact on the natural environment that serves as a life support system. Previous literature ignores the possibility that, systems changes due to economic activities are rather abrupt, involving threshold effects, non-linear feedbacks and stochastic influences.
It is this possibility of threshold effects with uncertainty that economic activities creates on the life support system that their paper aim to develop an economic growth model to help examine the effects of such thresholds on economic growth and social welfare. They adopted a Ramsey-type of growth model with greenhouse gas emission (GHG) as an input in the production function and the accumulated GHG in the atmosphere as a capital stock, and derived exact formulas for accounting prices of concentration of GHGs for the risk to trigger catastrophic events that can be used in dynamic cost-benefit analysis. They also analyse two models, one with a single threshold and the other with correlated double thresholds with joint probability distribution.
They hope to empirically test the model using global climate change and ocean acidification risks, highlighted in the Nature article "A safe operating space for humanity" by Rockström et al. (2009).
Chuan-Zhong Li is a professor in Economics at Uppsala University, Sweden but took his PhD in 1994 from Umeå University under the guidance of Karl-Gustaf Löfgren.
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