2017/12 | LEM Working Paper Series | ||||||||||||||||
Faraway, so Close: Coupled Climate and Economic Dynamics in an Agent-Based Integrated Assessment Model |
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Francesco Lamperti, Giovanni Dosi, Mauro Napoletano, Andrea Roventini and Alessandro Sapio |
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Keywords | |||||||||||||||||
Climate Change; Agent-Based Models; Integrated Assessment; Macroeconomic Dynamics; Climate Damages.
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JEL Classifications | |||||||||||||||||
C63, Q40, Q50, Q54
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Abstract | |||||||||||||||||
In this paper we develop the first agent-based integrated assessment
model, which offers an alternative to standard, computable
general-equilibrium frameworks. The Dystopian Schumpeter meeting
Keynes (DSK) model is composed of heterogeneous firms belonging to
capital-good, consumption-good and energy sectors. Production and
energy generation leads to greenhouse gas emissions, which affect
temperature dynamics in a non-linear way. Increasing temperature
triggers climate damages hitting, at the micro-level, workers' labor
productivity, energy efficiency, capital stock and inventories of
firms. In that, aggregate damages are emerging properties of the
out-of-equilibrium interactions among heterogeneous and boundedly
rational agents. We find the DSK model is able to account for a wide
ensemble of micro and macro empirical regularities concerning both
economic and climate dynamics. Moreover, different types of shocks
have heterogeneous impact on output growth, unemployment rate, and the
likelihood of economic crises. Finally, we show that the magnitude and
the uncertainty associated to climate change impacts increase over
time, and that climate damages are much larger than those estimated
through standard integrated assessment models. Our results point to
the presence of tipping points and irreversible trajectories, thereby
suggesting the need of urgent policy interventions.
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