Template-Type: ReDIF-Article 1.0
Author-Name:  Frederic Ghersi and Jean-Charles Hourcade
Title:  Macroeconomic Consistency issues in E3 Modeling: The Continued Fable of the Elephant and the Rabbit
Classification-JEL: F0
Pages:  39-62
Volume:  Hybrid Modeling
Issue:  Special Issue #2
Year:  2006
Abstract:  Starting from a short presentation of the limits of using conventional production functions to hybridize energy-economy relationships, this paper presents a methodology aiming at a better integration of bottom-up policy scenarios in a top-down static general equilibrium framework. Along the lines of AhmadÕs innovation possibility curve, the methodology consists in implementing top-down envelopes of production and demand functions, whose variable point elasticities of substitution provide a flexible interface for calibration on any bottom-up expertise. Numerical experiments assessing the impact of a rising carbon tax on the global 2030 economy compare the application of this methodology to that of two standard CES-based approaches. Results confirm that, in case of large departures from reference scenarios or of strong convexities in bottom-up results, the use of conventional CES production and utility functions may lead to a significant bias in cost assessment. 
Handle: RePEc:aen:journl:2006SE_Jaccard-a03
File-URL: http://www.iaee.org/en/publications/ejarticle.aspx?id=2167
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