Changing climate – changing behavior: empirical agent based computational models for climate change economics

The Institute of Economics will hold a meeting of its Seminar Series on Tuesday, May 14, 2019: Tatiana Filatova, from Princeton University, will present the paper 'Changing climate – changing behavior: empirical agent based computational models for climate change economics'.

Abstract:

Climate is changing and will cause substantial disruption to socio-economic systems worldwide. Climate mitigation and adaptation measures are vital and require a careful analysis of economic costs and benefits. While a possibility of crossing thresholds and triggering abrupt irreversible changes in climate-economy system is foreseen, the development of models to study their emergence and effects is challenging. This is especially relevant for economic models, which are designed to study marginal changes only. New information about climate-induced risks, and behavioral changes amplified by social interactions do affect economic choices as well as associated potential emissions and damages. In the past years, agent-based computation economics has provided insights in complex interactions between climate and economy. As in other domains, economic agent-based models applied in climate adaptation and mitigation studies assume heterogeneity, bounded rationality, social interactions, learning and adaptive behavior. Such dynamic models enhance our understanding of non-linear dynamics of complex climate-economy systems and a potential emergence of systemic structural shifts. Yet, theoretical and empirical microfoundations of agent-based climate change economics models remain open. This paper discusses methodological issues that are essential in defining rules for agents’ behavior, behavioral change, learning and interactions in the climate change context where past data may not represent future trends and where regime shifts are expected. The methodological transparency is essential for a systematic comparison of agent-based with traditional climate change economics models. It is also a vital element that enables to fully exercise the power of ACE models in climate change economics and to make them useful for policy analysis.