Climate Change, Innovation, and Economic Growth: The Contributions of William Nordhaus and Paul Romer

Abstract

William Nordhaus and Paul Romer shared the 2018 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for their work on long-run macroeconomic analysis. Nordhaus adapted the neoclassical growth model to study climate change, while Romer developed a model of innovation-based growth. The authors provide two distinct explanations of what drives growth, and employ contrasting methodologies for interpreting the results of their mathematical models. Macroeconomic policy in general, and climate policy in particular, would benefit from better integrating the theory and methods of these two laureates.