We construct a dynamic integrated assessment model of climate and the economy with very high geographic resolution. Migration is free within, but not allowed across, countries. The model parameterization uses a wealth of data, including the distribution of output, population, energy sources and use, and estimates of the local damages from climate change. It implies very large geographic dispersion in damages from warming. We conduct three kinds of policy experiments. In one, we note that a modest, uniform carbon tax limits global warming and damages around the world substantially. In a second experiment, we let the poorest countries not tax carbon, while the rest compensate by setting higher taxes; the efficiency losses are large. In a final experiment, we find that fast green technology growth alone is a poor substitute for carbon taxes, whether globally available or not.

We develop a model where the allocation of human resources, intergenerational social mobility, and technological growth are jointly determined. High growth endogenously increases the equilibrium return to innate cognitive ability and makes the allocation of individuals depend more on innate ability and less on social background. Individuals with a higher level of innate cognitive ability can deal better with less known, but more productive, technologies and thus choose a higher rate of technological growth. A social allocation based on innate ability and high growth will thus reinforce each other, implying the possibility of multiple endogenous growth equilibria.

This paper takes as given that (i) the burning of fossil fuel increases the carbon dioxide content in the atmosphere, which (ii) in turn leads to global heating and global climate change of a

We develop a quantitative macroeconomic theory of input-saving technical change to analyze how markets economize on scarce natural resources, with an application to fossil fuel. We find that aggregate US data call for a very low short-run substitution elasticity between energy and the capital/labor inputs. Our estimates imply that energy-saving technical change took off when the oil shocks hit in the 1970s. This response implies significant substitutability with the other inputs in the long run: even under ever-rising energy prices, long-run consumption growth is still possible, along with a modest factor share of energy.

We analyze a dynamic stochastic general-equilibrium (DSGE) model with an externality—through climate change—from using fossil energy. Our central result is a simple formula for the marginal externality damage of emissions (or, equivalently, for the optimal carbon tax). This formula, which holds under quite plausible assumptions, reveals that the damage is proportional to current GDP, with the proportion depending only on three factors: (i) discounting, (ii) the expected damage elasticity (how many percent of the output flow is lost from an extra unit of carbon in the atmosphere), and (iii) the structure of carbon depreciation in the atmosphere. Thus, the stochastic values of future output, consumption, and the atmospheric CO2 concentration, as well as the paths of technology (whether endogenous or exogenous) and population, and so on, all disappear from the formula. We find that the optimal tax should be a bit higher than the median, or most well-known, estimates in the literature. We also formulate a parsimonious yet comprehensive and easily solved model allowing us to compute the optimal and market paths for the use of different sources of energy and the corresponding climate change. We find coal—rather than oil—to be the main threat to economic welfare, largely due to its abundance. We also find that the costs of inaction are particularly sensitive to the assumptions regarding the substitutability of different energy sources and technological progress.

This paper provides an analytical characterization of Markov perfect equilibria in a model with repeated voting, where agents vote over distortionary income redistribution. A key result is that the future constituency for redistributive policies depends positively on current redistribution, since this affects both private investments and the future distribution of voters. The model features multiple equilibria. In some equilibria, positive redistribution persists forever. In other equilibria, even a majority of beneficiaries of redistribution vote strategically so as to induce the end of the welfare state next period. Skill-biased technical change makes the survival of the welfare state less likely.