Up the Down-escalator? Health, Productivity and Individual Incentives under Climate Change

Ivan Frankovic, Deutsche Bundesbank
Michael Freiberger, International Institute for Applied Systems Analysis
Michael Kuhn , Vienna Institute of Demography
Stefan Wrzaczek, International Institute for Applies Systems Analysis

Temperature increases in excess of the 1.5-degree limit are expected to yield substantial losses in peoples’ health and productivity that stretch across the life course of many generations. By diminishing individual resources and capabilities as well as individuals’ future prospects, climate impacts are additionally prone to alter individuals forward-looking behaviours, most notably investments into maintaining and enhancing human capital. Here, incentives may change either way, where only individuals with sufficient resources may engage in efforts to counteract detrimental climate impacts, whereas less resourced individuals may give up even on human capital investments they may otherwise undertake. To understand these behavioural impacts of climate change and their long-run consequences, we build a model of a continuous time economy populated by overlapping generations of individuals with a realistic demography and endogenous mortality and productivity. Individual behaviours and outcomes are traced along their lifecycle where human capital investments help them to enhance health and productivity and thereby insulate them against the negative impacts of climate change on their mortality and productivity. Besides detrimental impacts at the individual level, climate overshoot leads to a loss in aggregate-level productivity, depressing individuals’ earnings. Our model traces out material and health outcomes as well as welfare along the cohort lifecycle and across the population. We calibrate our model to several country-specific contexts and simulate the impact of a number of climate scenarios on behavioural responses and economic and health outcomes as well as welfare across a succession of cohorts.

See extended abstract

 Presented in Session 49. Health and Economic Outcomes