Accounting for spatial economic interactions at local and meso scales in integrated assessment model (IAM) frameworks: challenges and recent progress

The scientific and policy needs to assess and manage climate change impacts have spawned new coupled, multi-scale integrated assessment model (IAM) frameworks that link global climate and economic processes with high-resolution data and models of human-environmental systems at local and meso scales (Fisher-Vanden and Weyant 2020 Annu. Rev. Resour. Econ. 12 471-87). A central challenge is in accounting for the fundamental interdependence of people, firms, and economic activities across space at multiple scales. This requires modeling approaches that can incorporate the relevant spatial details at each scale while also ensure consistency with spatially varying feedbacks and interactions across scales-a condition economists refer to as spatial equilibrium. In this paper, we provide an overview of how economists think about and model spatial interactions, particularly those at the local level. We describe challenges and recent progress in accounting for greater spatial heterogeneity at individual (field, agent) scales and incorporating heterogeneous spatial interactions and dynamics into consistent IAM frameworks. We conclude that the most notable progress is in advancing global IAMs with spatial heterogeneity and dynamics embedded in spatial equilibrium frameworks and that less progress has been made in incorporating features of spatial equilibrium into highly detailed multi-scale IAMs.

Automated summary

The scientific and policy needs to assess and manage climate change impacts have led to the development of new integrated assessment models (IAMs), which link global climate and economic processes with local and meso-scale data and models of human-environmental systems. The challenge lies in accounting for the interdependence of people, firms, and economic activities across space at multiple scales. This paper provides an overview of how economists think about and model spatial interactions, and discusses recent progress in incorporating spatial heterogeneity and dynamics into IAM frameworks.