DSICE: A Dynamic Stochastic Integrated Model of Climate and Economy

34 Pages Posted: 27 Jan 2012

See all articles by Yongyang Cai

Yongyang Cai

Ohio State University (OSU); Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP)

Kenneth L. Judd

Stanford University - The Hoover Institution on War, Revolution and Peace; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP); National Bureau of Economic Research (NBER)

Thomas S. Lontzek

University of Zurich; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP)

Date Written: January 18, 2012

Abstract

This paper introduces a dynamic stochastic integrated model of climate and economy (DSICE), and a numerical dynamic programming algorithm for its solution. More specifically, we solve an example with annual time periods, a six hundred year horizon, and shocks to the economic and climate system. Our dynamic programming methods solve such models on a laptop in about an hour, and do so with good accuracy. This decisively refutes the pessimism one often hears about the possibility of solving such models.

Keywords: numerical dynamic programming, value function iteration, tipping points, stochastic IAM

JEL Classification: C63, Q54, D81

Suggested Citation

Cai, Yongyang and Judd, Kenneth L. and Lontzek, Thomas S., DSICE: A Dynamic Stochastic Integrated Model of Climate and Economy (January 18, 2012). RDCEP Working Paper No. 12-02, Available at SSRN: https://ssrn.com/abstract=1992674 or http://dx.doi.org/10.2139/ssrn.1992674

Yongyang Cai (Contact Author)

Ohio State University (OSU) ( email )

Department of Agricultural, Environmental
and Development Economics
Columbus, OH 43210
United States

Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP) ( email )

5735 S. Ellis Street
Chicago, IL 60637
United States

Kenneth L. Judd

Stanford University - The Hoover Institution on War, Revolution and Peace ( email )

Stanford, CA 94305-6010
United States

Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP) ( email )

5735 S. Ellis Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Thomas S. Lontzek

University of Zurich ( email )

Switzerland

Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP) ( email )

5735 S. Ellis Street
Chicago, IL 60637
United States

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