Temperature Anomalies in a Simple Overlapping Generations Model

The main aim of the paper is to examine the impact of temperature anomaly in an overlapping generations (OLG) model. The rise in temperature captured by the damage function has a direct effect on production. As temperature rises above the pre-industrial level, output and capital accumulation decline, making representative agent worse o as the lifetime utility declines. The result of the analysis predicts that a temperature anomaly of 2:5°C requires a consumption equivalent of 1.04 percent of GDP. The model further shows that the more dependent an economy is on capital, the more significant the losses will be as temperature increases