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Transfer Issues in IA Modeling

Transfer Issues in IA Modeling. Zili Yang State University of New York at Binghamton. Transfers in different contexts. In general equilibrium theory In environmental issues In coalition theories. What do we learn in theory?.

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Transfer Issues in IA Modeling

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  1. Transfer Issues in IA Modeling Zili Yang State University of New York at Binghamton

  2. Transfers in different contexts • In general equilibrium theory • In environmental issues • In coalition theories

  3. What do we learn in theory? • Any efficient allocation can be a Walrasian equilibrium, if endowment transfers are allowed (the second fundamental theorem of welfare economics) • The transfer has to be “lump-sum”, or no transaction cost

  4. What do we learn in environmental economics? • Economy contains public ‘bad’ or detrimental externality (pollution) • The Lindahl equilibrium replaces the Walrasian equilibrium • The Nash equilibrium is inefficient • Any efficient allocation can be a Lindahl equilibrium, if endowment transfers are allowed (the second fundamental theorem of welfare economics for the economy with externality)

  5. Transfers in coalition theory (IEA) • Transfers are needed for the stability of IEA (according to some scholars) • The rationales of such transfers are based on incentives rather than equilibrium requirements

  6. Various types of transfers in real world • Transfer payments (domestic) • Financial transfers, such as FDI (international) • Technological transfers (international)

  7. Integrated assessment models (IAMs) • Purposes of IAM (from economic point of view) • Types of IAM • Transfers in IAM

  8. Purposes of IAM • Provide future GHG emission scenarios • Analyze various GHG mitigation policies (transfer policy included) • Serve as testing platform for coalition theories

  9. Methodologies used by IAMs • Simulation models • CGE models (static or recursive-dynamic) • Dynamic optimization models Only dynamic optimization models treat climate change as stock externality phenomenon

  10. Transfers in climate change policies • Technological transfers: an all-inclusive policy option (IPCC literature) • Many GHG mitigation policies under discussion require financial transfers (CDM, JI, etc.)

  11. Why transfers are so important? • Cost-effectiveness in current policy regimes (example: Kyoto Protocol) • Theoretic foundation of efficiency: equalization of marginal GHG mitigation costs across regions)

  12. Modeling transfers in IAM • Channels of transfers • Ex ante or endogenous vs.ex post transfers • Interpreting transfers

  13. Cost benefit analysis of transfers • Under most policy targets, allowing transfers always bring net gains • It is widely accepted that transfers can enhance effectiveness of policies

  14. Status of modeling transfers • Transfer amounts and directions are heavily depend on model assumptions and specifications • In some IA models, transfer amounts are huge and infeasible in real world • Publications and literature on transfer issues are extensive

  15. Conclusions • Transfer issues deserve extensive studies • “devils are in the details” • There are much more need your study

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