Faraway, so close : coupled climate and economic dynamics in an agent-based integrated assessment model
Abstract
In this paperwe 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 lead 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 IAMs. Our results point to the
presence of tipping points and irreversible trajectories, thereby suggesting the need of urgent policy
interventions.
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