Limiting Emissions and Trade: Some Basic Ideas
NBER Working Paper No. 16147
The computable general equilibrium models used in the literature tend to be a bit of a black box. This paper provides some intuition behind what goes on in these black boxes by laying out a simple general equilibrium model and intuitively explaining what lies behind the demand for emissions. It traces out how a reduction in total emissions allowed in one country aspects the general equilibrium and the determinants of the extent of leakage in the model as well as more generally. It concludes with some implications for policy.
Published: Limiting Emissions and Trade: Some Basic Ideas, Kala Krishna, in The Design and Implementation of US Climate Policy (2012), University of Chicago Press