Decomposing Integrated Assessment Climate Change
35 Pages Posted: 8 Aug 2005 Last revised: 19 Aug 2008
Date Written: 2005
We present a decomposition approach for integrated assessment modeling of climate policy based on a linear approximation of the climate system. Our objective is to demonstrate the usefulness of decomposition for integrated assessment models posed in a complementarity format. First, the complementarity formulation cum decomposition permits a precise representation of post-terminal damages thereby substantially reducing the model horizon required to produce an accurate approximation of the infinite-horizon equilibrium. Second, and central to the economic assessment of climate policies, the complementarity approach provides a means of incorporating second-best effects that are not easily represented in an optimization model.
Keywords: integrated assessment, decomposition, terminal constraints, optimal taxation
JEL Classification: C61, C63, D58, D61
Suggested Citation: Suggested Citation