Lecture_21 - Economic Models of Global Warming and Climate...

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Economic Models of Global Warming and Climate Policy Three economic models: (1) Hotelling Model of an Environmental Stock Constraint √√√ (2) Dynamic Efficiency (3) Dynamic Efficiency with Stock Constraint [Combines (1) and (2)]
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Model 2: Dynamic Efficiency New element: global warming damage cost – Damage cost as a function of CO 2 concentration (long story: damage cost depends on temperature change, which depends on CO 2 concentration) Empirical considerations Estimates of damage costs What is the shape of the damage cost function? ) ( t A d 0 ) ( t A d 0 ) ( t A d
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From Nordhaus reading
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Dynamic Efficiency (cont.) Dynamic Efficiency in global warming problem Definition: the time path of fossil fuel use that maximizes the present value of fossil fuel net benefits minus global warming damage costs Essence of the framework: benefit-cost analysis
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Dynamic Efficiency (cont.) Dynamic efficiency as an unconstrained optimization problem Choice variables
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Lecture_21 - Economic Models of Global Warming and Climate...

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