Article

Adaptive Model-Predictive Climate Policies in a Multicountry Setting

Thierry Bréchet, Carmen Camacho and Vladimir M. Veliov

in The Oxford Handbook of the Macroeconomics of Global Warming

Published in print January 2015 | ISBN: 9780199856978
Published online May 2015 | | DOI: http://dx.doi.org/10.1093/oxfordhb/9780199856978.013.0006
Adaptive Model-Predictive Climate Policies in a Multicountry Setting

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This chapter extends the use of integrated assessment models (IAMs) by defining rational policies based on predictive control and adaptive behavior. After a review of the main IAMs, the concept of Model Predictive Nash Equilibrium (MPNE) is introduced within a general model involving heterogeneous economic agents operating in (and interfering with) a common environment. This concept captures the fact that agents do not have a perfect foresight for several ingredients of the economy and the environment. The canonical IAM (DICE) is used as a benchmark. The concept of MPNE is then enhanced with adaptive learning about the environmental dynamics and the damages caused by global warming. The approach is illustrated by some numerical experiments in a two-region setting.

Keywords: adaptative learning; environmental economics; global warming; integrated assessment; optimal control

Article.  11716 words. 

Subjects: Economics ; Agricultural, Environmental, and Natural Resource Economics ; Econometrics and Mathematical Economics

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