Increasing returns to scale in energy-intensive sectors and its implications on climate change modeling

Increasing returns to scale (IRS) phenomena are widely present in economies, and integrated assessment models (IAMs) for climate change generally assume constant returns to scale (CRS). This paper studies the connection between IRS in energy-intensive sectors and the regions' attitude towards climate change. In a model of detrimental (negative) externality, we proved that if some agents' activities related to externality generation exhibit IRS,...