Learning by Doing vs Learning by Researching in a Model of Climate Change Policy Analysis

Many predictions and conclusions in the climate change literature have been made and drawn on the basis of theoretical analyses and quantitative models that assume exogenous technological change. One is naturally led to wonder whether those conclusions and policy prescriptions hold in the more realistic case of endogenously evolving technologies. In previous work we took a popular integrated assessment model and modified it so as to allow for an explicit role of the stock of knowledge which accumulates through R&D investment. In our formulation knowledge affects both the output production technology and the emission-output ratio. In this paper we make further progress in our efforts aimed to model the process of technological change. In keeping with recent theories of endogenous growth, we specify two ways in which knowledge accumulates: via a deliberate, optimally selected R&D decision or via experience, giving rise to Learning by Doing. As an illustration, we simulate the model under the two versions of endogenous technical change and look at the dynamics of a selected number of relevant variables, including growth rates of GDP and physical capital, as well as total emissions and rate of domestic abatement