2016/29 LEM Working Paper Series

Complexity and the Economics of Climate Change: a Survey and a Look Forward

Tomas Balint, Francesco Lamperti, Antoine Mandel, Mauro Napoletano, Andrea Roventini and Alessandro Sapio
climate change, climate policy, climate economics, complex systems, agent-based models, socio-economic networks

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We provide a survey of the micro and macro economics of climate change from a complexity science perspective and we discuss the challenges ahead for this line of research. We identify four areas of the literature where complex system models have already produced valuable insights: (i) coalition formation and climate negotiations, (ii) macroeconomic impacts of climate-related events, (iii) energy markets and (iv) diffusion of climate-friendly technologies. On each of these issues, accounting for heterogeneity, interactions and disequilibrium dynamics provides a complementary and novel perspective to the one of standard equilibrium models. Furthermore, it highlights the potential economic benefits of mitigation and adaptation policies and the risk of under-estimating systemic climate change-related risks.
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