Abstract
Economic models of climate policy (or policies to combat other environmental problems) typically neglect psychological adaptation to changing life circumstances. People may adapt, to different degrees, to a deteriorated environment. The present paper addresses these issues in a model of optimal tax policy to combat climate change and discusses the consequences for optimal climate policies. Furthermore, from a normative-methodological point of view, we argue that psychological adaptation needs to be taken into account even by a pure welfarist policy maker, who aims at internalizing an intertemporal externality.
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