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A Global Equilibrium Model of Economy-Climate Interactions

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  • Per Krusell

    (Princeton University and Institute for International Economic Studies (Stockholm))

Abstract

This paper constructs a dynamic general-equilibrium model of the world economy and the global climate system. The goal of the paper is to characterize quantitatively the transition of the world economy, including welfare assessments, to a steady state with zero emissions of carbon. There is a continuum of regions corresponding to locations around the globe. Each region operates a production technology that uses physical capital and carbon energy. Global carbon burning affects the climate, which induces region-specific production damages. Financial-markets incompleteness limits insurance against idiosyncratic productivity and climate shocks. Permanent geophysical regional differences influence regional production, consumption, and welfare outcomes.

Suggested Citation

  • Per Krusell, 2009. "A Global Equilibrium Model of Economy-Climate Interactions," 2009 Meeting Papers 1186, Society for Economic Dynamics.
    • Handle: RePEc:red:sed009:1186
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    References listed on IDEAS

    as
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    3. George-Marios Angeletos, 2007. "Uninsured Idiosyncratic Investment Risk and Aggregate Saving," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(1), pages 1-30, January.
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    6. Partha Dasgupta & Geoffrey Heal, 1974. "The Optimal Depletion of Exhaustible Resources," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(5), pages 3-28.
    7. Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 867-896, October.
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