Work

Asset Diversification Versus Climate Action

Year: 2020

Type: article

Abstract: Asset pricing and climate policy are analyzed in a global economy where consumption goods are produced by both a green and a carbon‐intensive sector. Given that the economy is initially heavily dependent on carbon‐intensive capital, the desire to diversify assets complements the attempt to mitigate economic damages from climate change. In the longer run, however, a trade‐off between diversification and climate action emerges. We derive the optimal carbon price and the equilibrium risk‐free rate, and risk premia. Climate disasters significantly decrease the risk‐free rate but increase risk premia on financial assets, especially if no climate policy is implemented.

Source: International Economic Review

DOI: 10.1111/iere.12691

Authors: Christoph Hambel, Holger Kraft, Frederick van der Ploeg

Institutions: Tilburg University, Goethe University Frankfurt, University of Oxford

Language: English

Topic: Climate Change Policy and Economics

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Climate action

Open Access status: hybrid

Estimated APC paid: $2,500