Conference Agenda

We introduce the concept of sustainable lifestyles in a discrete choice model of consumption behaviour. Agents behave in either a ‘selfish’ or ‘pro-social’ way by choosing different degrees of internalisation of environmental damage from the consumption of an environmentally harmful good. Pro-social behaviour means lower consumption and is rewarded with warm-glow. Moreover, the agents’ decision is influenced by social norms, which endogenously depend on aggregate choices. The model is developed in a dynamic framework, allowing agents to switch behaviour. Our results show that conventional measures limiting consumption at an individual level may increase consumption at the aggregate level. We characterise social tipping points for sustainability transitions in terms of equilibria bifurcations and hysteresis of population dynamics. The model is extended in different directions, with different types of social influence and with a state dependent warm-glow. This more complicated decision environment gives alternative regimes with either dampening or self-reinforcing feedback in decisions. Three scenarios are identified: for strong social norms positive feedback leads to multiple equilibria. For moderate social norms there is a unique equilibrium. For weak social norms, we obtain periodic dynamics of behaviours. In particular, more informed choices and lower variability across agents are ‘destabilising’, leading to periodic dynamics or multiple equilibria.

Existing estimates on the damages of climate change and the social cost of carbon (SCC) include a wide set of market and non-market damages from global warming. So far, no study considered the costs of the risk that human civilization become extinct – either due to extinction of \emph{homo sapiens} or due to a permanent drop to a small population of humans living without experiencing any utility from being alive. We augment the conventional SCC concept by including the cost of extinction by using a standard total utilitarian approach and the value of a statistical life year concept. We provide a closed-form approximation of the civilizational extinction risk component of the SCC. Contrary to the conventional SCC component, the extinction-risk component increases in the consumption growth rate as the value of human civilization becomes higher over time. Numerically, we quantify the extinction-risk SCC component for plausible parameter ranges for a national government that considers only national or global welfare. For example, then 1~ degree C of warming increases the baseline extinction risk by only one percent, e.g. from 0.1 \% to 0.101 \%, the SCC in the US increase by approximately 1,000-4,000~\$/tCO2 (60-180~\$/tCO2) when the global (national) value of extinction is accounted for. While our results emphasize that extinction risk may be the dominant component in the SCC, they also show that accounting for extinction has a more moderate effect on the SCC than one might intuitively assume.

We study a long-horizon, oligopolistic market with random shocks to demand that can be arbitraged by two large storage operators with finite capacity. The application we speak to is electricity but our results extend to any storable commodity -- that is, most commodities. Because the arbitrage spread is so sensitive to market power, storage operators face strong incentives to restrain quantities by tacitly colluding. This cooperation takes new forms thanks to the multiplicity of actions they must take: selling, buying or both. We construct payoff-maximizing equilibria of this stochastic game, and uncover a new form of Partial Cooperation that trades off quantities and delay. Head-on competition is not always an equilibrium of the long-horizon game, unlike many standard games, when market power becomes large enough. We present some robustness checks. We also draw implications for policy and suggest poorly competitive storage is a negative externality to the development of the underlying commodity -- for example, renewable energy.