WARM
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WARM is an econometric general equilibrium model for the analysis of medium term policy issues concerning economy-environment linkages. It possesses a macroeconomic perspective but is characterised by both a regional and sectoral breakdown. All agents' decisions are based on microeconomic principles. Markets in general, and product market in particular, are imperfect competitive. The labour market is characterised by trade unions which bargain over wages with the firms. In the version Bosello and Carraro (2001) labour market is divided into skilled and unskilled work force, this is to allow the study of targeted tax cuts. A latent variable approach, based on a Kalman filter estimation procedure, is used in order to endogenise technical progress. The basic idea behind is that the dynamics of technical progress is unobserved, but can be inferred from the dynamics of other observable variables such as output, prices, or R&D spending. The impact of economic activities on the environment is assessed by calculating the amount of emissions. The latter are: SOx, NOx, CO, CO2, particulate matter, and VOCs. WARM is not calibrated to a base year, but is estimated with panel regression techniques, using data for 1978-1989.[1]
Contents
- 1 Result
- 1.1 Typical Model Applications:
- 1.2 Behavioural assumptions:
- 1.3 Government behaviour:
- 1.4 Energy-environment module
- 1.5 Dynamic structure:
- 1.6 Linkage between regions and countries:
- 1.7 Market Structure:
- 1.8 Main model results:
- 1.9 Required technical infrastructure:
- 1.10 Structure of Input Data and Data Sources:
- 1.11 Model Extensions:
- 1.12 Regional Scope:
- 2 See also
- 3 References
Result
Typical Model Applications:
- Simulation of industrial, labour and environmental tax policies and their impacts and feedbacks on economic, energy and environmental variables.
- Simulation of the effects of R&D and innovation strategies and of their impact on economic growth and international competitiveness.
Behavioural assumptions:
- Households: A representative household maximises his lifetime utility subject to a budget constraint: First, he allocates the disposable income over the life cycle among current consumption (nondurables, durables, services, energy sources) and savings. At a second stage, labour supply and consumption demand are determined as a result from an economic decision between consumption and leisure (utility is assumed to be separable in both arguments). Assuming weak separability in goods and services of the utility function allows to derive consumer demands for homogeneous bundles of goods and services.
- Firms: WARM distinguishes among four types of representative firms operating in each European country and owned by households: an agricultural firm, a multi-output manufacturing firm (including durables, nondurables, services), a firm dealing with production and distribution of electricity, and a firm engaged in the supply of fossil fuels (comprising coal, gas, petroleum products). Firms aim at maximising profits defined over an infinite temporal horizon. Input and output decisions follow a multistage allocation process (depending on e.g. relative prices, technical change, marginal production costs). Firms' outputs are provided to several buyers, both domestically and abroad, by assuming different transaction, distribution, and transportation costs.[1]
Government behaviour:
Government's behaviour is endogenous i.e. a function of the Government's policy objectives. The government's activities are:
- Public good production,
- public investments (depending on cost of investment, cost of funds available for financing investment expenditure, economic policy targets),
- regulation and redistribution of public income among agents.
Energy-environment module
The environmental impact of economic activities is quantified in the environmental module: By means of technical coefficients the amount of the following (mainly energy-related) pollutants is calculated: SOx, NOx, PMs, CO, and volatile organic compounds. The users of fuels are the electricity, energy, agricultural and manufacturing firms, as well as households.[1]
Dynamic structure:
- Simulation period up to 2030
- By using a latent variable structural equation model, the dynamics of technical progress are inferred from the dynamics of observable variables such as output, prices, (endogenous) R&D spending as well as policy instruments (publicly funded R&D). A capital vintage approach is used with two types of capital stock: an environment-friendly and a polluting capital stock (i.e. technical progress is endogenised and embodied in the capital input).
Linkage between regions and countries:
- Individual EU countries are linked by endogenous trade flows. Import demand follows the Armington approach, while the export price of a good produced by a country and sold to another country is a constant proportion of the production price of the same good.
- Bilateral exchange rates are exogenously given.
- WARM is not a multi-country interlinked model, for instance, the structure of technologies and preferences is the same for each group of agents operating in individual countries; heterogeneity at the national level is accounted for by panel data econometric techniques used in estimation.[1]
Market Structure:
Product market:
- Imperfect competition (firms charge a mark-up over marginal production costs).
Labour market:
- Imperfect competition (wage bargaining between unions and firm).
Main model results:
Macro economic results:
- GDP, production, consumption, investment, external trade, relative prices, employment (skilled/unskilled), primary factor income and transfers, tax incidence and revenues, labour productivity, R&D spending
Sectoral economic results:
- Production, value added, investment, final and intermediate consumption, exports, imports, relative prices, employment
- Energy production, final and intermediate energy consumption, energy prices, atmospheric emissions (SOx, NOx, PMs, CO, and volatile organic compounds), pollution abatement capital[1]
Required technical infrastructure:
- Hardware: IBM-PC compatible, MS-DOS, Pentium or 486 processor, 100Mhz, RAM 16 Mb.
- Software: EXCEL, TSP, SRIFIS, SIMPC, FORTRAN
Structure of Input Data and Data Sources:
- For each of the EU15 countries and for the EU-15 as a whole time series of annual data concerning real economic aggregates were collected, covering the estimation period 1978-1989. Most time series come from OECD and EUROSTAT.
- Data for domestic energy flows were obtained from IEA-OECD Energy Balances and Energy Statistics publication, while the IEA-OECD Oil and Gas Information and the IEA-OECD Coal Information provided bilateral trade flow data for each of the energy source considered in the model.
- The IEA-OECD Energy Prices and Taxes provided data on prices and taxes imposed on energy products, as well as national sources.[1]
Model Extensions:
- Introduction of a segmented labour market into two interrelated markets: skilled and unskilled workers (see Bosello and Carraro 2001). There are two kinds of labour: skilled and unskilled, endowed each with a representative union bargaining over wages and employment levels with firms to maximise the utility of its members.
Regional Scope:
EU-15[1]
See also
References
Bosello, F. and C. Carraro (2001),"Recycling Energy Taxes: Impacts on a Disaggregated Labour Market", Energy Economics, 23(5): 569-594.
European Commission DG XII (1995), W.A.R.M. World Assessment of Resource Management, EUR 16716 EN, Brussels.
