Intergenerational markets in everything?

by on February 14, 2007 at 6:09 am in Economics | Permalink

We print a government bond called a Global Warming Bond.  These have stamped on
them: "I pay out 1000 indexed pounds in every year – beginning in the year 2050
and going on forever".   Bonds would be given out, as a subsidy, to those
people and organizations who reduce emissions today.

The bonds would have immediate value.  A market in them would spring up.  I shall
assume that their status as government bonds would make risk of default
negligible.  One might object to this, but I shall leave it at that.

The attractive thing about these bonds is that (leaving aside technical issues
about general equilibrium reallocations across asset classes) they would be
funded essentially by future taxpaying citizens.  Those earning and paying taxes
in 2050 onwards would fund them.  Our citizens, in 2007, would gain.

In this way, the unborn would subsidize us to cut carbon emissions.

Ha! There is general case for subsidizing virtuous behavior, but don’t think the future people are paying; they inherit both the tax liability and the bonds.  Our great-grandchildren pay only to the extent that the existence of the bonds causes us to feel wealthier, spend more, and leave smaller bequests.  Even Ph.d. economists miss that point with astonishing regularity.  That link is via Mark Thoma, who also links to commentary from Larry Summers and other luminaries.

Here is Mark’s new blog experiment.

1 theCoach February 14, 2007 at 8:53 am

One thing that seems fairly important in this type of discussion would be the depreciation rate of the wealth created. I am assuming there is the potential for great variability in that rate, but I never see it discussed.
Is there any data on the difference between wealth depreciation in different countries?

2 mic February 14, 2007 at 10:00 am

our grandchildren will inherit the liability; chinese grandchildren will inherit the bonds

3 Daniel Klein February 14, 2007 at 10:43 am

Ronnie Horesh has been writing about social policy bonds for some time, but his idea is not subsidy but rather more like prize. The government issues bonds that make big payments to owner if certain social goals are achieved. The idea is that the bonds will motivate social entrepreneurs to both obtain the bond and solve the problem. See

Injecting incentives into the solution of social problems: Social Policy Bonds by Ronnie Horesh
Economic Affairs, Sept 2000

4 Doug February 14, 2007 at 2:22 pm

>”Our great-grandchildren pay only to the extent that the existence of the bonds causes us to feel wealthier, spend more, and leave smaller bequests.”

They also pay if cutting carbon emmissions slows growth.

5 Robert Speirs February 16, 2007 at 12:00 pm

And are the bonds worthless if global warming doesn’t happen to be true or anthropogenic? And how is that determined? How about if global warming turns out to be a positive? Do those who retard it have to pay a fine? We certainly don’t have any idea right now which way it will go.

6 sadsad October 13, 2007 at 2:33 pm
7 jad games February 9, 2010 at 1:14 pm

thank you very much for this articl

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