A World Induced Technical Change Hybrid Model

TLDR

Hybrid models that combine the detailed energy input of Bottom‑Up approaches with the long‑run dynamics of Top‑Down models are needed to assess future energy scenarios, their compatibility with greenhouse‑gas stabilization, and their links to climate policy. This paper introduces and describes the WITCH model, a World Induced Technical Change Hybrid model, and outlines its baseline and calibration procedure. WITCH endogenously models technological progress through learning‑curve price reductions and R&D investments, integrates detailed energy inputs within a neoclassical optimal growth framework, and captures interregional economic linkages to analyze optimal economic and environmental policies via a dynamic game.

Abstract

The need for a better understanding of future energy scenarios, of their compatibility with the objective of stabilizing greenhouse gas concentrations, and of their links with climate policy, calls for the development of hybrid models. Hybrid because both the technological detail typical of Bottom Up (BU) models and the long run dynamics typical of Top Down (TD) models are crucially necessary. We present WITCH - World Induced Technical Change Hybrid model - a neoclassical optimal growth model (TD) with energy input detail (BU). The model endogenously accounts for technological progress, both through learning curves affecting prices of new vintages of capital and through R&D investments. In addition, the model captures the main economic interrelationships between world regions and is designed to analyze the optimal economic and environment policies in each world region as the outcome of a dynamic game. This paper provides a detailed description of the WITCH model, of its Baseline, and of the model calibration procedure.