Faraway, So Close: Coupled Climate and Economic Dynamics in an Agent-Based Integrated Assessment Model

LEM Working Paper Series

40 Pages Posted: 3 Apr 2017 Last revised: 6 Apr 2017

See all articles by Francesco Lamperti

Francesco Lamperti

Scuola Superiore Sant'Anna di Pisa - Institute of Economics and LEM; Fondazione Eni Enrico Mattei (FEEM)

Giovanni Dosi

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM)

Mauro Napoletano

Université de Nice Sophia Antipolis - Groupe de Recherche en Droit, Economie et Gestion (GREDEG); Observatoire Français des Conjonctures Economiques (OFCE); SKEMA Business School; Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM)

Andrea Roventini

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM); Observatoire Français des Conjonctures Economiques (OFCE)

Alessandro Sapio

University Parthenope of Naples

Date Written: April 1, 2017

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 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.

Keywords: Climate Change; Agent-Based Models, Integrated Assessment, Macroeconomic Dynamics, Climate Damages

JEL Classification: C63, Q40, Q50, Q54

Suggested Citation

Lamperti, Francesco and Dosi, Giovanni and Napoletano, Mauro and Roventini, Andrea and Sapio, Alessandro, Faraway, So Close: Coupled Climate and Economic Dynamics in an Agent-Based Integrated Assessment Model (April 1, 2017). LEM Working Paper Series, Available at SSRN: https://ssrn.com/abstract=2944328 or http://dx.doi.org/10.2139/ssrn.2944328

Francesco Lamperti (Contact Author)

Scuola Superiore Sant'Anna di Pisa - Institute of Economics and LEM ( email )

Institute of Economics
Piazza Martiri della Liberta, n. 33
Pisa, Pisa 56127
Italy

Fondazione Eni Enrico Mattei (FEEM) ( email )

C.so Magenta 63
Milano, 20123
Italy

Giovanni Dosi

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM) ( email )

Piazza Martiri della Liberta, 33
Pisa, I-56127
Italy

HOME PAGE: www.lem.sssup.it

Mauro Napoletano

Université de Nice Sophia Antipolis - Groupe de Recherche en Droit, Economie et Gestion (GREDEG) ( email )

250, rue Albert Einstein
Valbonne, 06560
France

Observatoire Français des Conjonctures Economiques (OFCE) ( email )

60, rue Dostoïevski
Sophia-Antipolis Cedex, 06902
France

HOME PAGE: http://www.ofce.sciences-po.fr

SKEMA Business School ( email )

60 rue Dostoïevski
Sophia Antipolis, 06902
France

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM) ( email )

Piazza Martiri della Liberta, 33
Pisa, I-56127
Italy

Andrea Roventini

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM) ( email )

Piazza Martiri della Liberta', 33-I-56127
Pisa
Italy

Observatoire Français des Conjonctures Economiques (OFCE)

69 Quai d'Orsay
Paris 75004
France

Alessandro Sapio

University Parthenope of Naples ( email )

via generale Parisi 13
via Acton 38
naples, Naples 80133
Italy

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