Modelling Greening Investors: Economic Development, Opinion Formation, and Technological Change in a Multilevel Simulation Model

The processes of invention, innovation and diffusion of technologies is of enormous importance for assessing environmental policy. The models presented in this paper identify crucial factors of energy consumption, energy productivity, unemployment and labor productivity. Therefore, the models could be used for exploring policy measures like energy taxes, permits and subsidies. The paper also addresses some methodological questions. It is demonstrated how one can build a fairly complex simulation model by a graduated process of refinement and extension. Starting with a mathematically well understood system of differential equations, in the first step a selection process between two technologies is simulated. In the second step, continuos inventions are introduced. In the last step, a multilevel model endogenizes innovations by introducing a population of firms that adjust their decisions about investments through opinion formation. This last model indicates an explicit interaction between the macroeconomic environment and the firms at the microeconomic level.