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

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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)

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.

Suggested Citation

  • F. Ghersi & Jean Charles Hourcade, 2006. "Macroeconomic consistency issues in E3 modeling: The continued fable of the elephant and the rabbit," Post-Print hal-00716324, HAL.
    • Handle: RePEc:hal:journl:hal-00716324
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    1. Renaud Crassous & Jean-Charles Hourcade & Olivier Sassi, 2006. "Endogenous Structural Change and Climate Targets Modeling Experiments with Imaclim-R," The Energy Journal, , vol. 27(1_suppl), pages 259-276, January.
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    5. Avi J. Cohen, 2003. "Retrospectives: Whatever Happened to the Cambridge Capital Theory Controversies?," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 199-214, Winter.
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