Induced innovation in a decentralized model of climate change
We propose a model of climate change consistent with four principal stylized facts. First, the benefits and costs of climate change mitigation policies are not evenly distributed across generations. Second, capital accumulation is not determined jointly with emissions policy, but rather as a choice made by self-interested economic agents. Third, most research and development activity in the energy sector is undertaken by private firms. Fourth, significant imperfections exist in the market for technology. The model is calibrated to match global trends in GWP, energy production, and investment in research and development, and is used for the evaluation of policies including research and development subsidies and carbon taxes.
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