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Accounting for household heterogeneity in general equilibrium economic growth models

N.B. Melnikov, O'Neill, B.C. and M.G. Dalton

Energy Economics, 2012, vol. 34, issue 5, 1475-1483

Abstract: We describe and evaluate a new method of aggregating heterogeneous households that allows for the representation of changing demographic composition in a multi-sector economic growth model. The method is based on a utility and labor supply calibration that takes into account time variations in demographic characteristics of the population. We test the method using the Population-Environment-Technology (PET) model by comparing energy and emissions projections employing the aggregate representation of households to projections representing different household types explicitly. Results show that the difference between the two approaches in terms of total demand for energy and consumption goods is negligible for a wide range of model parameters. Our approach allows the effects of population aging, urbanization, and other forms of compositional change on energy demand and CO2 emissions to be estimated and compared in a computationally manageable manner using a representative household under assumptions and functional forms that are standard in economic growth models.

Keywords: Computable general equilibrium; Demographic heterogeneity; Consumer preferences; Labor supply; Aggregation; Energy demand (search for similar items in EconPapers)
JEL-codes: C61 D91 J11 O41 Q43 (search for similar items in EconPapers)
Date: 2012
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