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    This document discusses the limitations of conventional economic models in informing climate policy and how conceptual models can provide alternative insights. It argues that conventional models make unrealistic assumptions about human and economic behavior that result in poor approximations of reality. Conceptual models take a less ambitious approach by highlighting key features rather than describing the entire economy, making them better suited to thought experiments and providing policy insights without calculations. The document gives examples of areas where conceptual models can be more helpful than conventional models, such as outlining desirable futures, considering future generations, and emphasizing uncertainties.

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    This document discusses the limitations of conventional economic models in informing climate policy and how conceptual models can provide alternative insights. It argues that conventional models make unrealistic assumptions about human and economic behavior that result in poor approximations of reality. Conceptual models take a less ambitious approach by highlighting key features rather than describing the entire economy, making them better suited to thought experiments and providing policy insights without calculations. The document gives examples of areas where conceptual models can be more helpful than conventional models, such as outlining desirable futures, considering future generations, and emphasizing uncertainties.

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    Attribution Non-Commercial (BY-NC)
    Download as PPS, PDF, TXT or read online from Scribd
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    25 views8 pages

    Assessing Energy Futures 1

    Uploaded by

    Daisy
    This document discusses the limitations of conventional economic models in informing climate policy and how conceptual models can provide alternative insights. It argues that conventional models make unrealistic assumptions about human and economic behavior that result in poor approximations of reality. Conceptual models take a less ambitious approach by highlighting key features rather than describing the entire economy, making them better suited to thought experiments and providing policy insights without calculations. The document gives examples of areas where conceptual models can be more helpful than conventional models, such as outlining desirable futures, considering future generations, and emphasizing uncertainties.

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    Attribution Non-Commercial (BY-NC)
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    of 8

    What Can Economic Models Contribute to Climate Policy?

    Stephen J. DeCanio
    Professor of Economics, University of California, Santa Barbara
    Director, UCSB Washington Program
    1608 Rhode Island Avenue, NW
    decanio@econ.ucsb.edu

    Presentation for 6th National Conference on Science, Policy, and the Environment
    January 26-27, 2006
    Washington DC
    The Economy: A Complex Territory
    Conventional View of General Equilibrium Economic Modeling

    Economy

    Model

    • Model is “descriptive” and approximates reality


    • Adding detail and complexity can fill out the model and improve the approximation
    • Dynamic behavior of the model corresponds to evolution of the economy
    But What if the Model and the Economy Have Very Little Overlap?

    Model

    Economy

    • Model assumptions about firms and individuals largely unrealistic


    • What’s left out as important or more important than what is included
    • “Equilibrium” underdetermined and dynamics unspecified
    Can “Normal Science” Improve the Models?

    • Assumption of optimization necessary for “economics”

    - What restrictions other than first-order conditions?


    - Atomistic utility functions must be given exogenously
    - Parameterization of technological change

    • Information requirements for agents’ decision-making

    - How much foresight?


    - Complexity and heuristics
    - Freedom or determinism?

    • “Present-centric” orientation assumes away the main problems

    - Focus on markets excludes future people


    - Discounting vs. future generations
    Conceptual Modeling: A Less Ambitious Approach

    Economy

    Conceptual Model

    • Model highlights some key feature or aspect of the economy


    • Thought experiment, not description
    • Grounding for policy insight, not calculation of optimal policy
    Areas in which conventional energy-economic models do a poor job

    • Illuminating the moral foundations of intergenerational interactions


    - Discounting is a misleading kludge
    - Utilitarianism is an obstacle to consensus

    • Long-term predictions of economic variables


    - Checking predictions against outcomes possible
    - Both signs and magnitudes of changes uncertain

    • Incorporating world-changing technological change


    - How did we imagine the future of computing back in the 1970s?
    - Do futurists ever get the “look and feel” of the future right?

    • Incorporating non-economic factors in human and social behavior


    - Economics is not the universal standard of behavior
    - Why does it occupy such a prominent place in public discourse?
    Areas in which conceptual models can be helpful

    • Outlining features of the future we want


    - Scenario analysis
    - Economics can help us avoid stupid mistakes

    • “What if” future generations could transact with us?


    - Golden Rule models of economic growth
    - Including future generations in “the market” results in multiple equilibria

    • Highlighting the limits of knowledge


    - The unpredictability of the future has consequences for action now
    - The importance of risk management

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