Title: REVISITING A CLIMATE-ECONOMY MODEL WITH CONSIDERATION OF AGENT’S HETEROGENEITY AND INTERACTIONS WITH THE AGENTS
Authors:
Sunghee Choi and Hanool Choi
Abstract:
This paper studies not only how heterogeneity in the economic agents and their interactions can be considered into the simulation process of a climate-economy model but also reveals the role that heterogeneous characters play in the functioning of the model. To do so, this paper first reviews the well-known Dynamic Integrated Climate Economy (DICE) model and points out the limitations of such top-down style models in explaining heterogeneity in agents. Then, we suggest an agent-based model (ABM) of Safarzynska and Bergh (2022) to highlight the usefulness of the ABM for incorporating heterogeneous agent’s characteristics and its interactions with other agents. Finally, by calibrating the ABM with the 2023 version of the DICE, we discover some simulation results that the long-term temperature is affected by bounded rationality of consumers, renewable preference of electricity producers, and interest rate of loan market. Several implications and important avenues for further research are identified.
Keywords: A climate-economy model, agent-based modelling, bounded rationality, renewable share of electricity, interest rate of loan market.
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