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

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  • John Hassler
  • Per Krusell

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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17757.

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Date of creation: Jan 2012
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Handle: RePEc:nbr:nberwo:17757

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  1. John Hassler & Per Krusell & Conny Olovsson, 2010. "Oil Monopoly and the Climate," American Economic Review, American Economic Association, vol. 100(2), pages 460-64, May.
  2. Hassler, John & Krusell, Per & Olovsson, Conny, 2012. "Energy-Saving Technical Change," CEPR Discussion Papers 9177, C.E.P.R. Discussion Papers.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Economics and Climate Change: Integrated Assessment in a Multi-Region World
    by Christian Zimmermann in NEP-DGE blog on 2012-02-03 03:44:11
  2. Economics and Climate Change: Integrated Assessment in a Multi-Region World
    by Christian Zimmermann in NEP-DGE blog on 2012-02-03 03:44:11
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Cited by:
  1. Gustav Engstrom & William Brock & Anastasios Xepapadeas, . "Spatial Climate-Economic Models in the Design of Optimal Climate Policies across Locations," DEOS Working Papers 1224, Athens University of Economics and Business.

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