White Paper – Pew Center on Global Climate Change 1
White Paper
Insights Not Numbers:
The Appropriate Use of Economic Models
By
Janet Peace and John Weyant
April, 2008
White Paper – Pew Center on Global Climate Change 2
Insights Not Numbers:
The Appropriate Use of Economic Models1
by
Janet Peace and John Weyant
April, 2008
Executive Summary
Economic modeling has played a prominent role in the climate-change policy debate as
stakeholders have sought to understand the impacts and assess the costs of different strategies for
reducing greenhouse gas (GHG) emissions. Models are an invaluable tool for exploring
alternative policy choices and for generating insights about how the economy is might respond to
different types and forms of regulation. They cannot, however, predict future events, nor can
they produce precise projections of the consequences of specific policy.
Every model uses its own set of assumptions, definitions, structure and data – its results
ultimately depend on these attributes and choices. A proper understanding of economic models,
their uses and limitations, is therefore critical in furthering a constructive debate about options
for climate policy. As a starting point we highlight three general observations about the use of
economic models:
• While economic models have become increasingly sophisticated, forecasting the future
remains inherently uncertain. The longer the time horizon of the analysis, the larger the
uncertainties involved.
• Model results are strongly dependent on input assumptions and on the structure of the
model itself. Critical assumptions and structural biases are not always readily apparent to
the outside observer.
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