Climate Change Expectations and Endogenous Economic Growth in the Dice Model
36 Pages Posted: 7 Aug 2019
Date Written: 2019
This paper studies the investment based growth rate effects of climate change. The analysis is based on the Integrated Assessment Model DICE by Nordhaus (2008). I depart from the original model, in that endogenous investments into a knowledge stock drive economic growth. Due to a negative capital accumulation as well as savings effect on the knowledge stock, climate change has a negative impact on gross income that lasts into the long run. In order to be able to quantify the growth rate effects, I calibrate the endogenous growth model version of DICE towards its exogenous growth counterpart. I find that in the exogenous growth model version of DICE, compared to its endogenous growth equivalent, in the social optimum, gross income is over-estimated by 2.3 % in 2100 and by 6.8 % in 2150.
Keywords: endogenous economic growth and climate change
JEL Classification: O440, Q540
Suggested Citation: Suggested Citation