A Growth Theoretical Approach
Chapter 7: Numerical Applications: Dynamic Global Economy Models
Except for the numerical analysis set out in Chapter 4, where our main concern was to establish whether a static approximation of the Pigouvian tax constitutes a reasonable approximation of the shadow price of pollution, we have so far concentrated on theoretical aspects of social accounting. The theoretical analysis helps us understand how national and global welfare measures depend on the functioning of the economic system. Moreover, it provides a general understanding of how the tool kit developed in earlier chapters can be applied to derive exact welfare measures. On the other hand, theoretical models do not allow us to assess the empirical importance of different parts of the welfare measures (for example, the relative welfare contributions of technological change, market distortions, and so on). In this chapter, we return to the discussion in Section 4.4, while at the same time shifting our focus to the analysis of global economy models. The main purpose is to address the welfare contributions of external effects and technological change by means of numerical methods. To be more speciﬁc, is it necessary to estimate such welfare contributions in order to arrive at an accurate – or at least reasonably accurate – estimate of the correct welfare measure, or is it possible to proceed as if the resource allocation is a ﬁrst best equilibrium with a stationary technology? Given the enormous difﬁculties involved in practical applications of social accounting, it is helpful to know to what extent different entities are likely to contribute to welfare...
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