Daniel H Karney

Research

Working Papers

  • “General Equilibrium Effects of Carbon Offsets” (with Isla Globus-Harris).
    • Abstract: “We construct an analytical general equilibrium model of an economy with carbon offsets, and show that increasing the carbon offset price has an ambiguous effect on aggregate emissions and welfare. Using two carbon accounting metrics, we demonstrate that offsets are over-credited under many parameterizations; however, offset under-crediting can also occur. Due to general equilibrium effects, neither carbon accounting metric is a sufficient statistic for welfare. Furthermore, we define four margins whereby offsets can respond to payments, including a margin not previously identified. Our results suggest that market spillover effects warrant consideration when evaluating carbon offset policies.”
    • Link: https://arxiv.org/abs/2606.25909
  • “A Model of the Model: Unpacking CGE Results on Leakage from Climate Policy” (with Don Fullerton & Kathy Baylis). [NBER Working Paper #34533 ; under review]
    • Abstract: “Computational general equilibrium (CGE) models can evaluate detailed tax reforms, trade restrictions, or environmental policy. These models can capture many complexities, but these complexities can make results difficult to interpret. Analytical general equilibrium (AGE) models provide better intuition and interpretation but cannot capture relevant complexities. We propose a method that employs AGE models to understand CGE models – a “model of the model”. We apply this idea to climate policy and carbon leakage – the increase in emissions elsewhere. Our AGE models identify seven key economic determinants of leakage within any one outcome. We then unpack results from three existing CGE models.”
    • Link: https://www.nber.org/papers/w34533
  • “Environmental Policy in General Equilibrium under Market Power and Price Discrimination” (with Tengjiao Chen). [under review]
    • Abstract: “This study constructs a novel analytical general equilibrium model to compare environmental policies in a setting where oligopolistic energy firms engage in third-degree price discrimination across residential consumers and industrial firms. Closed-form solutions demonstrate the impact on prices and quantities. The resulting welfare change is decomposed across three distortions: output, price discrimination, and externality. This study finds that the output distortion and price discrimination welfare effects generally move in opposite directions under policies such as an emission tax or a two-part instrument. Numerical analysis compares policies and finds scenarios where the output distortion and price discrimination welfare changes fully offset and thus leaves the net welfare gain of the externality correction. In this way, environmental policy can be designed to mitigate output distortion welfare concerns when firms have market power.”
    • Link: https://arxiv.org/abs/2501.03114

Peer-Reviewed Articles