John Hassler, Per Krusell, and Conny Olovsson. March, 2015

Syllabus: The Climate and the Economy

Course purpose: obtain an understanding for the interrelation between climate change and the global economy. The course will give and understanding of the basic issues, tools to analyze them, and deliver assessments of various forms of policy, both qualitatively and quantitatively. This will all be accomplished from a joint natural-science and economics perspective. The course should be particularly valuable for (current and future) policymakers in the area of environment and climate change but also for anyone else with an interest in these areas.

Examination: there is a final exam and there is a set of homeworks that also count toward the final grade. Your final grade is the best score of the following two: (i) the final exam score; (ii) 0.8 times the final exam score plus 0.2 times the homework score. (Both the final exam and the homework sets have a maximum score of 100.)

Readings: the main reading is a manuscript (kompendium) prepared for this course by the instructors.  A preliminary version is found at Mondo. This will be updated along the way of the course.  An introduction to climate economics is found at or in Swedish at


TA tasks: the teaching assistant, Laurence Malafry, e-mail:, will provide homework solutions after the due date, will grade the homeworks, and will be available to give students hints for solving the homeworks.

Contact information for instructors and TAs: call or e-mail any time. Office hours: by appointment.

Other information: the lectures will be given by Hassler, Krusell, and Olovsson; the TA sessions will be given by Laurence Malafry.

Lecture plan (each lecture lasts for 2 hrs):

1.       Overview (JH,PK,CO,) (30 mins): goes over the course contents, including the two-way interaction between the economy and the climate and their effects on our citizens' welfare, “externalities" and a need for policy intervention, whether and why economics/economists are needed in this field, the RICE model, and a general aim to introduce the students to the debate on climate change. Discussion of course requirements etc.
The natural science part (JH) (5.5 hrs): The greenhouse effects, energy budgets, the carbon cycle, climate modeling.  Readings at

2.       The natural science part, cont'd.

3.       The natural science part, cont'd.

4.       Externalities in public economics (CO) (3 hrs): first welfare theorem, taxes vs. other instruments, free-riding, coordination issues across countries.

5.       Externalities in public economics, cont'd.
Growth theory and empirics (PK) (3 hrs): the Solow model, optimal growth, exogenous and endogenous technological change, the world income distribution.

6.       Growth theory and empirics, cont'd.

7.       Natural resource economics (CO) (3 hrs): the Hotelling rule, the Dasgupta-Heal model,technical change of various sorts, backstop technology.

8.       Natural resource economics, cont'd.
Endogenous technical change (CO) (2hrs): how the economy accumulates technology and chooses between different kinds of technology, energy-related and other.

9.       Endogenous technical change, cont'd.
Measuring damages (JH) (2 hrs): how it is done (bottom-up  vs.  reduced form, damage functions).

10.   Measuring damages, cont'd.
A complete model (PK) (4 hrs): putting everything together into an “integrated assessment model" in order to analyze policy and make forecasts.

11.   A complete model, cont'd.

12.    A complete model, cont'd.

13.   Panel discussion (JH,PK,CO): discussion of the Stern report and the public debate; what of relevance was not covered in the course and what is the aim of current and future research?