Modelling Sustainable Development

Modelling Sustainable Development

Transitions to a Sustainable Future

The Fondazione Eni Enrico Mattei series on Economics, the Environment and Sustainable Development

Edited by Valentina Bosetti, Reyer Gerlagh and Stefan P. Schleicher

This insightful book explores the issue of sustainable development in its more operative and applied sense. Although a great deal of research has addressed potential interpretations and definitions of sustainable development, much of this work is too abstract to offer policy-makers and researchers the feasible and effective guidelines they require. This book redresses the balance.

Chapter 13: An Endogenous Technical Change Model: FEEM-RICE

Valentina Bosetti, Carlo Carraro and Marzio Galeotti

Subjects: economics and finance, environmental economics, environment, environmental economics

Extract

Valentina Bosetti, Carlo Carraro and Marzio Galeotti 13.1 INTRODUCTION The FEEM-RICE model presented below is an extended version of the socalled RICE-99 model by Nordhaus and Boyer (2000). RICE-99 is a Ramsey–Koopmans single-sector optimal growth model suitably extended to incorporate the interactions between economic activities and climate. There is one such model for each of the eight macro-regions into which the world is divided: USA, Other High Income countries (OHI), OECD Europe (Europe), Russia and Eastern European countries (REE), Middle Income countries (MI), Lower Middle Income countries (LMI), China (CHN) and Low Income countries (LI).1 The Model General Structure Within each region a central planner chooses the optimal paths of two control variables, fixed investment and carbon energy input, so as to maximize welfare, defined as the present value of per capita consumption. The value added created via production (net of climate change) according to a constant returns technology is used for investment and consumption, after subtraction of energy spending. The technology is Cobb–Douglas and combines the inputs from capital, labour and carbon energy together with the level of technology. Population (taken to be equal to full employment) and technology levels grow over time in an exogenous fashion, whereas capital accumulation is governed by the optimal rate of investment. Compared to the previous RICE-96 model of Nordhaus and Yang (1996), this specification contains a more detailed regional disaggregation of the world. However, the main novelty of the new model is the introduction of an energy input. Because...

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