Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86859
Authors: 
Houba, Harold
Kremers, Hans
Year of Publication: 
2009
Series/Report no.: 
Tinbergen Institute Discussion Paper 09-029/1
Abstract: 
Integrated assessment models lack a microeconomic foundation in modelling environmental damages to the economy. To overcome this, damage coefficients are incorporated in standard microeconomic models. Firms and consumers take both damages and prices as given. Demand, supply, profit and expenditure functions under damage coefficients are derived that allow easy implementation in applied economic models through appropriate price distortions related to such coefficients. For the consumer, Slutsky's equations are derived. The different speeds of equilibrium adjustment in economic and climate models is reconciled in the Recursive Equilibrium with Environmental Damages (REED). An exchange economy and Robinson Crusoe economy illustrate our approach.
Subjects: 
environmental damage
substitution effects
income effects
Slutky's equations
equilibrium
JEL: 
Q41
Q51
Q52
D11
D12
D51
Document Type: 
Working Paper

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