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Economics and Climate Change: Integrated Assessment in a Multi-Region World

John Hassler () and Per Krusell ()

No 8771, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper develops a model that integrates the climate and the global economy---an integrated assessment model---with which different policy scenarios can be analyzed and compared. The model is a dynamic stochastic general-equilibrium setup with a continuum of regions. Thus, it is a full stochastic general-equilibrium version of RICE, Nordhaus's pioneering multi-region integrated assessment model. Like RICE, our model features traded fossil fuel but otherwise has no markets across regions---there is no insurance nor any intertemporal trade across them. The extreme form of market incompleteness is not fully realistic but arguably not a decent approximation of reality. Its major advantage is that, along with a set of reasonable assumptions on preferences, technology, and nature, it allows a closed-form model solution. We use the model to assess the welfare consequences of carbon taxes that differ across as well as within oil-consuming and -producing regions. We show that, surprisingly, only taxes on oil producers can improve the climate: taxes on oil consumers have no effect at all. The calibrated model suggests large differences in views on climate policy across regions.

Keywords: climate; dynamic; integrated assessment; regional; stochastic (search for similar items in EconPapers)
JEL-codes: H23 O44 Q0 (search for similar items in EconPapers)
Date: 2012-01
New Economics Papers: this item is included in nep-cwa, nep-dge, nep-ene and nep-env
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Journal Article: ECONOMICS AND CLIMATE CHANGE: INTEGRATED ASSESSMENT IN A MULTI-REGION WORLD (2012) Downloads
Working Paper: Economics and Climate Change: Integrated Assessment in a Multi-Region World (2012) Downloads
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