What Good Is Happiness?

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Executive Summary

The heterogeneity of the available physical capital with respect to productivity and emission intensity is an important factor for policy design, especially in the presence of emission restrictions. In a vintage capital model, reducing pollution requires to change the capital structure through investment in cleaner machines and to scrap the more polluting ones. In such a setting the authors show that emission tax and auctioned emission permits may yield contrasting outcomes. In this paper the authors examine whether, and how, welfare economics should incorporate the insights from happiness and satisfaction studies.

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