With that said, it greatly surprises me that Professor Nordhaus writes out dynamic CGE models that do not incorporate the microeconomics of adaptation. In his December 2016 paper, Professor Nordhaus writes out his equation (3) on page 6. This "structural" equation maps average temperature into global damage caused by global warming. This equation violates the Lucas Critique. The "deep" parameters embedded in this equation (3) are not time invariant parameters. They continuously shrink toward zero as the economy re-organizes. Since Professor Nordhaus does not introduce cities into his model he eliminates space and thousands (perhaps millions of adjustment mechanisms). A recent 2016 JPE paper demonstrates using reduced form methods how damage estimates from temperature shrink over time.
Barreca A, Clay K, Deschenes O, Greenstone M, Shapiro JS. Adapting to climate change: The remarkable decline in the US temperature-mortality relationship over the twentieth century. Journal of Political Economy. 2016 Feb 1;124(1):105-59.
Let me point you to my papers on this subject;
My "Lego Paper" (joint with Devin Bunten and forthcoming in the Journal of Housing Economics).
Joshua Graff Zivin & Matthew E. Kahn, 2016. "Industrial Productivity in a Hotter World: The Aggregate Implications of Heterogeneous Firm Investment in Air Conditioning," NBER Working Papers 22962, National Bureau of Economic Research, Inc.
Devin Bunten & Matthew E. Kahn, 2014. "The Impact of Emerging Climate Risks on Urban Real Estate Price Dynamics," NBER Working Papers 20018, National Bureau of Economic Research, Inc.
Kahn, Matthew E., 2015. "Climate Change Adaptation: Lessons from Urban Economics," Strategic Behavior and the Environment, now publishers, vol. 5(1), pages 1-30,
June.
Kahn Matthew E., 2015. "Climate Change Adaptation Will Offer a Sharp Test of the Claims of Behavioral Economics," The Economists' Voice, De Gruyter, vol. 12(1), pages 25-30, August.
Matthew E. Kahn, 2009. "Urban Growth and Climate Change," Annual Review of Resource Economics, Annual Reviews, vol. 1(1), pages 333-350, 09.
Kahn, Matthew E. & Walsh, Randall, 2015. "Cities and the Environment," Handbook of Regional and Urban Economics, Elsevier.
Don't forget my Climatopolis book and the videos.