Agent-based Integrated Assessment Models: Alternative Foundations to the Environment-Energy-Economics Nexus

TL;DR

This paper reviews four agent-based integrated assessment models addressing climate change, highlighting their advantages over traditional models and suggesting future research directions for more comprehensive environmental-economic analysis.

Contribution

It introduces and compares four agent-based models linking environment, energy, and economy, emphasizing their novel features and potential for improved climate policy assessment.

Findings

Agent-based models incorporate heterogeneous agents and detailed damage allocation.

These models better represent financial systems and policy mixes.

They offer promising avenues for future climate-economic research.

Abstract

Climate change is a major global challenge today. To assess how policies may lead to mitigation, economists have developed Integrated Assessment Models, however, most of the equilibrium based models have faced heavy critiques. Agent-based models have recently come to the fore as an alternative macroeconomic modeling framework. In this paper, four Agent-based Integrated Assessment Models linking environment, energy and economy are reviewed. These models have several advantages over existing models in terms of their heterogeneous agents, the allocation of damages amongst the individual agents, representation of the financial system, and policy mixes. While Agent-based Integrated Assessment Models have made strong advances, there are several avenues into which research should be continued, including incorporation of natural resources and spatial dynamics, closer analysis of distributional effects and feedbacks, and multi-sectoral firm network structures.