Structural change in the Chicago region and the impact on emission inventories in a continuous-time modeling approach

Abstract

Since at least the time of the industrial revolution, it has been observed that changes in economic activity can induce changes in the natural environment. Conversely, environmental changes can-and increasingly do-have economic consequences. For example, increased levels of by-production or trade will generally lead to increases in pollution, and high regional pollution levels will affect households' location choices. As the interactions between economic and environmental systems are becoming stronger and more apparent, anticipating and understanding environmental changes induced by economic activity is becoming increasingly challenging for both environmental scientists and economists and for policy makers who must ultimately choose strategies to balance risks and costs. Therefore, many researchers have turned to what are termed 'integrated assessment' frameworks, comprising both economic and environmental models, for the purpose of conducting simulations that might inform us about what environmental changes lie ahead if economic activity should follow particular paths (for example, see Igos et al. 2015). The economic models employed in such frameworks are based on Abstract Motivated by both the need to model recent structural economic changes and the need to understand better the nature of environmental-economic interactions, this paper introduces a continuous-time regional econometric input-output model for the Chicago economy that can be used to analyze, at disaggregated sectoral and temporal levels, the economic and environmental implications of changes exogenous to the economy. The model's solution yields estimates of emission inventories, which may be used to analyze environmental implications of various economic changes and policy restrictions. This model is the first integrated economic-environmental model of which we are aware that has been formulated and estimated in continuous time for the regional economy of a metropolitan area. We believe that the model's formulation will enable it to enjoy greater compatibility with natural science-based models, which share such a formulation and flexibility in projecting future emissions corresponding to alternative future economic scenarios and in evaluating emissions policies relevant to such scenarios. Open Access© The Author(s) 2017. This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.