Macroeconomic consistency issues in E3 modeling: The continued fable of the elephant and the rabbit

F. Ghersi () and Jean Charles Hourcade ()
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F. Ghersi: X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris
Jean Charles Hourcade: CIRED - centre international de recherche sur l'environnement et le développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique

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Abstract: Starting from a short presentation of the limits of using conventional production functions to hybridize energy-economy relationships, this paper presents a methodology aiming at a better integration of bottom-up policy scenarios in a top-down static general equilibrium framework. Along the lines of Ahmad's innovation possibility curve, the methodology consists in implementing top-down envelopes of production and demand functions, whose variable point elasticities of substitution provide a flexible interface for calibration on any bottom-up expertise. Numerical experiments assessing the impact of a rising carbon tax on the global 2030 economy compare the application of this methodology to that of two standard CES-based approaches. Results confirm that, in case of large departures from reference scenarios or of strong convexities in bottom-up results, the use of conventional CES production and utility functions may lead to a significant bias in cost assessment. Copyright © 2006 by the IAEE. All rights reserved.

Date: 2006
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Citations: View citations in EconPapers (32)

Published in Energy Journal, 2006, 27 (SPEC. ISS. OCT.), pp.39

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00716324

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