Model predictive control, the economy, and the issue of global warming
(2014) Annals of Operations Research — Vol. 220, n° 1, p. 25-48 (2014)
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- Abstract
- This study is motivated by the evidence of global warming, which is caused by human activity but affects the efficiency of the economy. We employ the integrated assessment Nordhaus DICE-2007 model (Nordhaus, A question of balance: economic modeling of global warming, Yale University Press, New Haven, 2008). Generally speaking, the framework is that of dynamic optimization of the discounted inter-temporal utility of consumption, taking into account the economic and the environmental dynamics. The main novelty is that several reasonable types of behavior (policy) of the economic agents, which may be non-optimal from the point of view of the global performance but are reasonable form an individual point of view and exist in reality, are strictly defined and analyzed. These include the concepts of “business as usual”, in which an economic agent ignores her impact on the climate change (although adapting to it), and of “free riding with a perfect foresight”, where some economic agents optimize in an adaptive way their individual performance expecting that the others would perform in a collectively optimal way. These policies are defined in a formal and unified way modifying ideas from the so-called “model predictive control”.
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Bréchet, T., Camacho Pérez, M. d. C., & Veliov, V. (2014). Model predictive control, the economy, and the issue of global warming. Annals of Operations Research, 220(1), 25-48. https://doi.org/10.1007/s10479-011-0881-8 (Original work published 2014)