Macroeconomic Impacts of Microeconomic Damages in General Equilibrium: Productivity and Capital Losses

Marc A. C. Hafstead and Roberton C. Williams

No 34661, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The full economic costs and macroeconomic effects of microeconomic damages associated with pollution damages, climate impacts, and similar negative shocks are not well understood. Beyond the direct damages, market distortions, supply chains, changes in capital and labor costs, etc. can potentially magnify (or diminish) the costs of these shocks. In this paper, we use analytical and numerical general equilibrium models to investigate the channels through which microeconomic shocks affect the macroeconomy. We model different types of shocks, evaluate how anticipation affects the macroeconomic implications of shocks, and measure the overall welfare costs relative to the value of direct damages. We find that preexisting taxes magnify the overall welfare costs relative to direct damages, that savings and investment decisions driven by anticipations of certain types of shocks can interact with tax distortions to lower welfare costs, and that the ratio of welfare cost to direct damages varies substantially across sectors of the economy.

JEL-codes: C68 D60 E0 H20 Q54 (search for similar items in EconPapers)
Date: 2026-01
Note: EEE
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w34661.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:34661

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w34661
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().