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Economy-Wide Modeling, Environmental Macroeconomics, and Benefit-Cost Analysis

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  • V. Kerry Smith
  • Min Qiang Zhao

Abstract

This paper develops a new method for evaluating benefit estimates prepared for major environmental rules and addresses three criticisms of existing practices: (1) using benefit estimates from the literature without adjusting for the conceptual differences underlying their meaning, (2) ignoring feedback effects of policy, and (3) failing to recognize the potential for economy-wide effects of large policies. Our approach adapts a general equilibrium framework characteristic of macroeconomic models and focuses on the effects of introducing nonmarket environmental services into the aggregate or “stand-in” preference function. Two recent policies illustrate how it can be used to assess economy-wide effects.

Suggested Citation

  • V. Kerry Smith & Min Qiang Zhao, 2020. "Economy-Wide Modeling, Environmental Macroeconomics, and Benefit-Cost Analysis," Land Economics, University of Wisconsin Press, vol. 96(3), pages 305-332.
    • Handle: RePEc:uwp:landec:v:96:y:2020:1:3:p:305-332
    Note: DOI: 10.3368/le.96.3.305
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    Cited by:

    1. Smith, V. Kerry, 2023. "Accounting for income inequality in benefit transfers: The importance of the income elasticity of WTP," Journal of Environmental Economics and Management, Elsevier, vol. 118(C).
    2. Jared C. Carbone & Linda T.M. Bui & Don Fullerton & Sergey Paltsev & Ian Sue Wing, 2022. "When and How to Use Economy-Wide Models for Environmental Policy Analysis," Annual Review of Resource Economics, Annual Reviews, vol. 14(1), pages 447-465, October.

    More about this item

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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