ABM-IAM: optimal climate policy under bounded rationality and multiple inequalities

Abstract

Despite considerable concern about potentially inequitable effects of climate policy, models fall short in assessing their implications for policy design. To address this issue, we develop an agent-based climate-economy model, ABM-IAM, as a disaggregated, behavioural approach to integrated climate assessment. It describes networks of heterogeneous consumers, banks, power plants and firms, and is calibrated on patterns of growth and carbon dioxide emissions generated by the DICE model of Nordhaus. Whereas the latter assumes full employment and abstains from a financial sector and inequality considerations, our approach relaxes these restrictions to obtain a more reliable assessment of climate policy impacts. We show that inequalities in labour and capital income serve as essential but overlooked links between climate-change damages and optimal climate policy. Our result show that lower inequalities of labour income increase the social cost of carbon (SCC), while the impact of capital income inequalities on the SCC depends on the share of population receiving capital rents.

Reducing global inequality increases local cooperation: a simple model of group selection with a global externality

“…However, this local growth may come at the cost of an increase in CO 2 emissions and global temperature. Higher global temperature, in turn, results in long-term economic losses due to climate change that are distributed globally [6,7]. Our present study indicates that the evolution of prosocial behaviour is undermined if the global externality primarily harms the poor.…”

An Agent-Based Model of Cultural Change for a Low-Carbon Transition

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Agent-based Integrated Assessment Models: Alternative Foundations to the Environment-Energy-Economics Nexus

“…To consider how Agent-based Models may address some of the critiques levied at Integrated Assessment Models, I consider four ABIAM models: the Dystopian Schumpeter meets Keynes model (DSK hereafter, Lamperti, Bosetti, Roventini, & Tavoni, 2019;Lamperti, Bosetti, Roventini, Tavoni, & Treibich, 2021;Lamperti et al, 2018;Lamperti, Dosi, Napoletano, Roventini, & Sapio, 2020), the ABMIAM model of Safarzynska and van den Bergh (2022), the model of Czupryna, Franzke, Hokamp, and Scheffran (2020) (CFHS hereafter), and the model of Gerdes, Rengs, and Scholz-Wäckerle (2022) (GRSW hereafter). This section introduces the models, their purposes and general macroeconomic structure.…”