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Climate Change Around the World


  • Anthony Smith

    (Yale University)

  • Per Krusell

    (Stockholm University)


This paper builds a highly disaggregated, dynamic, general equilibrium model of interactions between the climate and the economy. The model consists of approximately 19,000 1-degree by 1-degree regions containing land. Regional climates (or average annual temperatures) respond differently to increases in the Earth's temperature, and regional productivity varies with regional temperature. Each region makes optimal consumption-savings decisions in response to its changing productivity in one of two extreme market structures: autarky and free capital mobility. The relationship between regional temperature and productivity has an inverse U-shape, calibrated so that the many-region model replicates estimates of aggregate global damages from climate change; the implied optimal temperature is approximately twelve degrees. The central result is that climate change affects regions very differently, with many regions gaining while others lose. Although a tax on carbon increases average welfare, there is a large disparity of views across regions, with both winners and losers. These findings depend very little on the structure of capital markets.

Suggested Citation

  • Anthony Smith & Per Krusell, 2017. "Climate Change Around the World," 2017 Meeting Papers 1582, Society for Economic Dynamics.
  • Handle: RePEc:red:sed017:1582

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    Cited by:

    1. Yongyang Cai & William Brock & Anastasios Xepapadeas & Kenneth Judd, 2018. "Climate Policy under Cooperation and Competition between Regions with Spatial Heat Transport," DEOS Working Papers 1806, Athens University of Economics and Business.

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