30 Jun Economic Modeling and the False Tradeoff Between Environmental Protection and Economic Growth
“Economic Modeling and the False Tradeoff Between Environmental Protection and Economic Growth” Contemporary Economic Policy 15, 1997
One important element of the current policy debate on what measures should be taken to reduce greenhouse gas emissions is the controversy over the costs of reducing those emissions. “Top-down ” macroeconomic and general equilibrium models give much higher estimates of the costs than “bottom-up” models based on microeconomic and engineering data. This paper investigates the causes of the divergence between the two modeling approaches. The conventional top-down models incorporate strong implicit assumptions about maximization, technical progress, and organizational efficiency that predetermine their results. However, these assumptions are questionable on both theoretical and empirical grounds. Economic assessment of policy alternatives would benefit from analyses that take account of the actual characteristics of business firms and other organizations
that emit greenhouse gases in the course of their activities.