Climate Change and Technical Progress: Impact of Informational Constraints

Abstract

In this paper we analyse a growth model that includes environmental and economic variables as well as technological progress under different informational constraints on the behavior of economic agents. To simulate the informationally constrained economy, we make use of the non-linear model predictive control technique. We compare models with exogenous and endogenous technical change as well as directed and undirected endogenous technical change under different informational structures. We show that endogenous technical change yields lower environmental damages than exogenous technical change with fully informed agents. At the same time, welfare may rise or decline depending on the efficiency of the technology in use. In the case of directed technical change, a green growth scenario generates a smaller temperature increase that, however, goes along with less output and lower welfare. This holds both for informationally constrained and unconstrained behaviour of agents. We find that the effects of informational constraints, with respect to the climate system, increase with the degree of endogeneity of technology in the model.

Keywords: KeEnvironmental economics, endogenous growth, directed technical change, model predictive control

JEL Classification: Environmental Economics, Economic Growth, Technical Progress