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Model of Climate Policy and Regulatory Instruments in a Decentralized Economy (PRIDE)

a) The aim of this model is to provide an integrated assessment of policy instruments within the context of dynamic game theory. The model represents strategically acting economic sectors that are relevant for energy-economic mitigation policy, i.e. households, production, fossil and renewable energy and fossil resource extraction. Furthermore, a government imposes policy instruments (taxes, subsidies, permits, R&D expenditures) in order to achieve cost-effective climate protection. Typical questions considered are: What are optimal policy instruments to internalize climate change, including related market failures on resource and capital markets? What role does strategic behavior of economic actors play? What are implications of climate policy for the distribution of rents?

b) The model concept was developed by Ottmar Edenhofer, Kai Lessmann, Matthias Kalkuhl and Klaus Eisenack. Implementation and operation is performed by Matthias Kalkuhl.

c) The model needs further calibration to provide more detailed insights into the dynamic of climate economics and policy. It is planned to use it for numerical illustration of several specific RD III research questions about supply-side dynamics (fossil resources) and permit market dynamics.

d) The model is capable to calculate an optimal mix of tax paths to overcome multiple market failures related to climate change. It is able to consider several dynamic general-equilibrium feedback effects. This allows extending (analytical) partial equilibrium analysis to a general equilibrium world.

[4] M. Kalkuhl, M, K. Eisenack, O. Edenhofer (2008): Climate Policy Instruments in a Differential Stackelberg Game with Market Imperfections. Conference Paper for the 13th International Symposium on Dynamic Games and Applications, June 30-July 3 2008, Wroclaw.

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