Growth and Mitigation Policies with Uncertain Climate Damage

Economic Growth Effects of Alternative Climate Change Impact Channels in Economic Modeling

“…Based on empirical GDP-temperature responses, Burke et al (2015) estimate global warming to reduce global GDP by 23% by 2100. Values around 10% and 15% are therefore often used in the literature to model high impact outcomes like tipping points (Nordhaus and Boyer 2000;Bretschger and Vinogradova 2014;Golosov et al 2014). Note that the results are not sensitive to the strength of the shock (discussed further in the Appendix, section A.3.2).…”

“…This is an interesting approach, complementary but not comparable to our work. Another group of literature directly focuses on productivity shocks of climate damages using dynamic stochastic general equilibrium models (DSGE): Bretschger & Vinogradova (2014) and Golosov et al (2014) endogenize macroeconomic volatility by linking the risk of productivity shocks to carbon concentration in the atmosphere. Lemoine & Trager (2014), Cai et al (2015) and Lontzek et al (2015) study uncertain tipping points that cause a discrete jump in climate damages (basically TFP is reduced).…”

“…These models, however, follow the DICE model and always use a multiplicative form of damages -climate damages affect total factor productivity and are not biased to specific production actors. The only exception is Bretschger & Vinogradova (2014) who model climate damage as recurrent, uncertain shocks on capital stocks. In order to conceptualize the different dynamics of climate damages, we focus in our paper on impulse response analysis of single, unanticipated productivity shocks, with differing assumptions on their persistence and biases toward production factors.…”

Creative destruction vs destructive destruction: A Schumpeterian approach for adaptation and mitigation

“…Very first study that combines the environment and Schumpeterian growth models is Aghion and Howitt (1998). Authors introduce the pollution in a Schumpeterian growth and make a balanced growth path analysis by taking into account the sustainable development criterion 5 . Grimaud (1999) extends this model to a decentralized economy in which he implements the optimum by R&D subsidies and pollution permits.…”