The Aggregation Dilemma in Climate Change Policy Evaluation

Ingmar Schumacher

VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association

Abstract: The results in this paper show that a policy maker who ignores regional data and instead relies on aggregated integrated assessment models will strongly underestimate the carbon price and thus the required climate policy. Using a stylized theoretical model we show that, under the mild and widely-accepted assumptions of asymmetric climate change impacts and declining marginal utility, an Aggregation Dilemma may arise that dwarfs most other policy-relevant aspects in the climate change cost-benefit analysis. Estimates based on the RICE model Nordhaus (2000) suggest that aggregation leads to around 26% higher total world emissions than those from a regional model. The backstop energy use would be zero in aggregated versions of the model, while it is roughly 1.3% of Gross World Product in the regionally-disaggregated models. Though the policy recommendations from fully aggregated models like the DICE model are always used as a benchmark for policy making, the results here suggest that this should be done with the reservations raised by the Aggregation Dilemma in mind.

JEL-codes: Q50 Q54 Q58 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-agr, nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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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 (2018)
Working Paper: The Aggregation Dilemma in Climate Change Policy Evaluation (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc15:113129

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