DSK – Dystopian Schumpeter Meeting Keynes climate-economy agent-based model

The Dystopian Schumpeter Meeting Keynes climate-economy agent-based model (DSK) is an agent based integrated assessment model for climate impacts and the study of climate fiscal and monetary policies.

The DSK model is an agent-based simulation laboratory representing a global economy and its relationship with changes in climatic conditions. In particular, it features heterogeneous and interacting firms, devoted to the production of either capital or consumption goods and receiving inputs from an energy sector, a financial system and a variety of households (see Figure below). Firms’ production and investments can be financed externally through a financial system with multiple banks. Cumulative emission are linked to temperature variations through a climate module accounting for feedback loops. As a key innovative feature climate damages are modelled at the individual level and macro-level outcomes emerges from the agent’s interactions.

Indeed, the modelling philosophy merges a complex system approach, bounded rationality in economic decisions and evolutionary mechanisms of learning and innovation. These elements allow studying robust emergent properties from disaggregated interactions of ecologies of agents across different markets in general disequilibrium.

The model allows studying the intricate relationship between climate physical and transition risks as well as their macroeconomic effects. Further, it envisages a government and a central that run fiscal and monetary/macro-prudential policy, respectively.

The model belongs to the “Schumpeter meeting Keynes” family of models developed at the Institute of Economics of the Scuola Superiore Sant’Anna (Pisa, Italy).