TY - JOUR
T1 - Environmental policy on the back of an envelope
T2 - A Cobb-Douglas model is not just a teaching tool
AU - Fullerton, Don
AU - Ta, Chi L.
N1 - Funding Information:
Publication of this supplement was supported by ETH Z?rich, the University of M?nster and Economics for Energy.
Publisher Copyright:
© 2019 Elsevier B.V.
PY - 2019/10
Y1 - 2019/10
N2 - To clarify and interpret the workings of a large computable general equilibrium (CGE) model of environmental policy, we build an aggregated Cobb-Douglas (CD) model that can be solved easily and analytically. Its closed-form expressions show exactly how key parameters determine the sign and size of effects from a large new carbon tax on emissions, revenue, prices, output, and welfare. Data and parameters from the detailed, dynamic CGE model of Goulder and Hafstead (2018) are used in the CD model to calculate results that can be compared with theirs. Results from the CD model track aggregates from the large CGE model quite closely, even though the CD model omits much detail such as the number of sectors, intermediate inputs, and international trade. A CGE model is quite useful to generate detailed numerical results and to reflect on particular aspects of environmental policy, but the simpler CD model provides a transparent view of exactly how the policy affects key outcomes.
AB - To clarify and interpret the workings of a large computable general equilibrium (CGE) model of environmental policy, we build an aggregated Cobb-Douglas (CD) model that can be solved easily and analytically. Its closed-form expressions show exactly how key parameters determine the sign and size of effects from a large new carbon tax on emissions, revenue, prices, output, and welfare. Data and parameters from the detailed, dynamic CGE model of Goulder and Hafstead (2018) are used in the CD model to calculate results that can be compared with theirs. Results from the CD model track aggregates from the large CGE model quite closely, even though the CD model omits much detail such as the number of sectors, intermediate inputs, and international trade. A CGE model is quite useful to generate detailed numerical results and to reflect on particular aspects of environmental policy, but the simpler CD model provides a transparent view of exactly how the policy affects key outcomes.
KW - Climate policy
KW - Energy economics
KW - General equilibrium
UR - http://www.scopus.com/inward/record.url?scp=85069639642&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85069639642&partnerID=8YFLogxK
U2 - 10.1016/j.eneco.2019.07.007
DO - 10.1016/j.eneco.2019.07.007
M3 - Article
AN - SCOPUS:85069639642
SN - 0141-8130
VL - 84
JO - International Journal of Biological Macromolecules
JF - International Journal of Biological Macromolecules
M1 - 104447
ER -