Environment, Directed Technical Change and Economic Policy (original) (raw)

We study the e¤ects of an economic policy in an endogenous growth general equilibrium framework where production of consumption goods requires two resource inputs: a polluting non-renewable resource and a non-polluting labour resource. The use of the latter contributes to the accumulation of pollution in the atmosphere, which a¤ects welfare. There is a speci…c research sector associated with each of those resources. We provide a full welfare analysis, and we describe the equilibrium paths in a decentralized economy. We go on to study the e¤ects of three associated economic policy tools: a tax on the polluting resource, and two research subsidies. We show that the optimal environmental policy has two main e¤ects; it delays the extraction of the resource and with it the level of polluting emissions and it reallocates research e¤orts, decreasing the amount put into "grey" research to the bene…t of "green" research. Finally, we compute the optimal values for these tools.