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The Economic Effects of Climate Change in Dynamic Spatial Equilibrium

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  • Rudik, Ivan

    (Cornell University)

  • Lyn, Gary

    (Iowa State University)

  • Tan, Weiliang
  • Ortiz-Bobea, Ariel

Abstract

We develop a dynamic-spatial equilibrium model to quantify the economic effects of climate change with a focus on the United States. We find that climate change reduces US welfare by 4% and global welfare by over 20%. Market- based adaptation through trade and labor reallocation increases US welfare, but with substantial spatial heterogeneity. Adaptation through labor reallocation and trade are complementary: together they boost welfare by 50% more than their individual effects. We additionally develop a new dynamic envelope theo- rem method for measuring welfare impacts in reduced form and to validate our quantitative model. We find that welfare distributions from our two approaches are consistent, indicating that our quantitative model captures the first-order factors for measuring the distributional impacts of climate change. The level and distribution of the economic impacts of climate change depends the sectoral and spatial structure of the economy, and the extent to which different markets can adapt.

Suggested Citation

  • Rudik, Ivan & Lyn, Gary & Tan, Weiliang & Ortiz-Bobea, Ariel, 2021. "The Economic Effects of Climate Change in Dynamic Spatial Equilibrium," SocArXiv usghb_v1, Center for Open Science.
    • Handle: RePEc:osf:socarx:usghb_v1
    DOI: 10.31219/osf.io/usghb_v1
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    References listed on IDEAS

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    1. David Albouy & Walter Graf & Ryan Kellogg & Hendrik Wolff, 2016. "Climate Amenities, Climate Change, and American Quality of Life," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(1), pages 205-246.
    2. Anouch Missirian & Wolfram Schlenker, 2017. "Asylum applications respond to temperature fluctuations," Post-Print hal-04136700, HAL.
    3. Ariel Ortiz-Bobea & Toby R. Ault & Carlos M. Carrillo & Robert G. Chambers & David B. Lobell, 2021. "Anthropogenic climate change has slowed global agricultural productivity growth," Nature Climate Change, Nature, vol. 11(4), pages 306-312, April.
    4. Marcel P. Timmer & Erik Dietzenbacher & Bart Los & Robert Stehrer & Gaaitzen J. Vries, 2015. "An Illustrated User Guide to the World Input–Output Database: the Case of Global Automotive Production," Review of International Economics, Wiley Blackwell, vol. 23(3), pages 575-605, August.
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