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Assessing Sustainable Development in a DICE World

Gustav Engström. 2009.

Abstract:

This paper investigates a method for assessing sustainable development under climate change in the Dynamic Integrated model of Climate and the Economy (DICE-2007 model). The analysis shows that the results, with respect to sustainability are highly sensitive to the calibration of the social welfare function. When revising the social welfare parameters of the DICE-2007 model to the alternative parametrization approach, used in the DICE-(1994,1999) model, it is only the former that upholds a sustainable productive base. This nding implies that when recalibrating the social welfare function, to match historical rates of return on capital, this can result in inconsistent projections of future social welfare. The robustness of these results are investigated by imposing uncertainty, regarding key parameter estimates. This shows that the social welfare parameters along with total factor productivity growth are much more important as determinants of productive base sustainability than climatic parameters such as the damage or temperature sensitivity coeffcients.

Keywords: Sustainable development, Climate Change, DICE-model, Productive base, Discounting

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