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Shaking the Dice Model -Economics and Climate Change

Applied Mathematics,��

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Thursday, August 28, 2014 - 2:00pm

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ECCR 257

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The DICE model was created by William Nordhaus.

The model combines a standard (Ramsay-Cass-Koopman) macroeconomic model withmodels of greenhouse gas emissions, climate change damages and abatement costs. A state of the economic model (at time t) consists of the following variables: population, capital, production, and greenhouse gas emissions. A state of the climate model consists of the mean surface temperature, the deep ocean temperature, and the masses of carbon in the atmosphere, upper ocean, and deep ocean. The two systems are coupled thru the emissions and surface temperature variables. At each time step policy variables must be chosen to allocate the gross world product between consumption, damage repair, and emissions reduction. Policy effectiveness is measured by a social utility function.

The Dice model continues to be influential in policy discussions among governments and economists. See for example the recent working paper by Simon Dietz and Nicholas Stern at��. “Shaking the Dice Model” refers to the authors’ sensitivity analysis of model outcomes in response to changes in certain parameters in the model and to changes in the model itself. Estimates of damage and abatement cost functions are difficult and controversial. Climate sensitivity in response to a doubling of atmospheric CO2 and other greenhouse gasses is uncertain. Indeed, the level of the risk climate change poses to ecosystems and to the world economy is uncertain. By exploring a range of outcomes one hopes to better understand the risk of pursuing “business as usual”.