The Aggregation Dilemma in Climate Change Policy Evaluation

Ingmar Schumacher

No 2018-002, Working Papers from Department of Research, Ipag Business School

Abstract: We show that a policy maker who ignores regional data and instead relies on aggregated integrated assessment models is likely underestimating the carbon price and thus the required climate policy. Based on a simple theoretical model we give conditions under which the Aggregation Dilemma is expected to play a role in climate change cost-benefit analysis. We then study the importance of the Aggregation Dilemma with the integrated assessment model RICE (Nordhaus and Boyer 2000). Aggregating all regions of the RICE-99 model into one region yields a 40% lower social cost of carbon than the RICE model itself predicts. Based on extrapolating the results a country-level integrated assessment model would give a more than eight times higher social cost of carbon compared to a fully aggregated model. We suggest that these tentative results require researchers to re-think the aggregation level used in integrated assessment models and to develop models at much lower levels of aggregation than currently available.

Keywords: Aggregation Dilemma; aggregation; Integrated Assessment Models; climate policy (search for similar items in EconPapers)
JEL-codes: Q54 Q58 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2018-01-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: THE AGGREGATION DILEMMA IN CLIMATE CHANGE POLICY EVALUATION (2018)
Working Paper: The Aggregation Dilemma in Climate Change Policy Evaluation (2015)
Working Paper: The Aggregation Dilemma in Climate Change Policy Evaluation (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ipg:wpaper:2018-002

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