DSICE: A Dynamic Stochastic Integrated Model of Climate and Economy
34 Pages Posted: 27 Jan 2012
Date Written: January 18, 2012
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
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