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Hassler, John; Sinn, Hans-Werner (2016): The fossil episode. In: Journal of Monetary Economics, Vol. 83: pp. 14-26
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Agriculture sector output (biocarbon) is a good substitute for oil in energy production but oil cannot be used as food. This one-way substitutability is analyzed in a dynamic general equilibrium model. It features three endogenous phases: a pure fossil, a mixed fossil and biocarbon and an absorbing biocarbon fuel only phase. In the latter two, the demand for biocarbon as fuel leads to increasing food prices. Depending on how easily capital and labor can reallocate, food prices increase by between 40% and 240%. The model is also used to analyze climate consequences of biocarbon fuel polices and of the shale revolution. (C) 2016 Elsevier B.V. All rights reserved.