A QUANTITATIVE DYNAMIC GENERAL EQUILIBRIUM MODEL OF CLIMATE CHANGE AND THE GLOBAL ECONOMY

We consider a decentralized equilibrium of a 1-region, global neoclassical growth model with non-renewable exhaustible resources and optimizing agents. The resource generates energy, which is essential for producing final output. Its use generates externalities by affecting the climate. The climate determination is modeled as in Nordhaus's RICE model. The model is calibrated to match aggregate U.S. data over the last century, including energy quantities and prices. It is used to discuss (i) positive issues, such as a "peak-oil" scenario and (ii) normative issues, thus comparing the planning outcome and a decentralized outcome. A companion paper, also submitted to the Istanbul SED, goes on to do quantitative optimal-taxation analysis.