Environmental Policies, Pollution and Growth in a Model with Vertical Innovations (original) (raw)

Optimal Public Policy in a Schumpeterian Model of Endogenous Growth with Environmental Pollution

The paper utilizes a model of endogenous growth with vertical innovation (รก la Aghion-Howitt) to examine how the inclusion of a production related pollution externality affects the prospect for long-run growth of a closed economy. It is derived that the social optimum exhibits the possibility of long-run sustainable growth, such that consumption, capital stock and output grow without bound, knowledge also grows in an unbounded fashion, and both -the intensity and stock of pollution -fall. In comparison, at the unregulated market equilibrium, a clear conflict arises between sustaining economic growth and environment protection, as growing pollution stock ceases the opportunity for long run growth in output, capital stock and consumption. Finally, in deriving the optimal public policy tool-kit, given the distortions in the unregulated market economy, it is shown that a positive and growing rate of tax on pollution, an ad valorem subsidy on capital and a positive R and D subsidy would implement the socially desirable outcome. However, a theoretical possibility of an optimal tax on R and D cannot be ruled out in an exceptional situation of too low a productivity of the R and D sector.

Growth, Innovation and Environmental Policy: Clean vs. Dirty Technical Change by

2000

This paper focuses on a two sector endogenous growth model with environmental quality, with two goods and factors, one clean and one dirty. Endogenous technological change creates either clean or dirty innovations, depending on relative profitability. The reduction of emissions intensity of aggregate output is achieved by changing the dirty-bias of technology in the economy. The decentralized equilibrium growth rate

Environmental Pollution in a Growing Economy with Endogenous Structural Change

SSRN Electronic Journal, 2000

In this paper we study the impact of environmental pollution in an endogenous growth model that allows for structural change. The model is based on doublydifferentiated R&D where newer, less polluting technologies gradually replace older ones. The analysis shows that the presence of environmental externalities stimulates structural change but reduces the growth rate of the economy. Further, comparing the models with and without structural change demonstrates that the latter implies stronger environmental damages and, consequently, a lower growth rate than the first one. Finally, levying a tax on the polluting output speeds up structural change, thus, reducing environmental pollution and spurring economic growth. This can give new support for the double dividend hypothesis.

Innovation and Environmental Policy: Clean vs. Dirty Technical Change

SSRN Electronic Journal, 2010

We study a two sector endogenous growth model with environmental quality with two goods and two factors of production, one clean and one dirty. Technological change creates clean or dirty innovations. We compare the laissez-faire equilibrium and the social optimum and study first-and second-best policies. Optimal policy encourages research toward clean technologies. In a second-best world, we claim that a portfolio that includes a tax on the polluting good combined with optimal innovation subsidy policies is less costly than increasing the price of the polluting good alone. Moreover, a discriminating innovation subsidy policy is preferable to a non-discriminating one.

Endogenous Growth, Green Innovation and GDP Deceleration in a World with Polluting Production Inputs

2013

We study economic growth and pollution control in a model with endogenous rate and direction of technical change. Economic growth (growth of real GDP) results from growth in the quantity and productivity of polluting intermediates. Pollution can be controlled by reducing the pollution intensity of a given quantity through costly research (green innovation) and by reducing the share of polluting intermediate quantity in GDP. Without clean substitutes, saving on polluting inputs implies that the rate of GDP growth remains below productivity growth (deceleration). While neither green innovation nor deceleration is chosen under laissez-faire, both contribute to long-run optimal pollution control for reasonable parameter values. In our baseline-model, there are no exhaustible resources. In an extension, we analyze the e ects of resource-scarcity on the environment, long-run growth and the direction of technical change.

Environmental quality and pollution-augmenting technological change in a two-sector endogenous growth model

Journal of Public Economics, 1995

This paper explores the link between environmental quality and economic growth in an endogenous growth model that incorporates pollution-augmenting technological change. It examines the conditions under which sustainable growth is both feasible and optimal. We explore also how the government should intervene to ensure the optimal levels of natural and knowledge capital, which share a publicgoods character. We establish the conditions for a more ambitious environmental policy to raise long-run growth.

The Growth-Environment Trade-off: Horizontal vs. Vertical Innovations

SSRN Electronic Journal, 2000

This paper explores the trade-o between economic growth and environmental quality along two paradigms of endogenous growth theory: variety expansion HIP and quality improvements VIP. We compare the policies that match the decentralized economies' paths with the optimal strong sustainable growth path, characterized by growth in consumption and improvements in environmental quality. Three policy tools are employed: subsidies to monopolists and R&D, and taxes on emissions. The later is increasing at the optimum, to keep the weight of tax revenues over output constant. All policy tools equal, the growth rate is higher in the VIP than in the HIP. The optimal subsidy to R&D is therefore greater and the cumulative l o o s i n output smaller under HIP than the VIP.

Economic Growth and the Dynamics of Environmental Quality1

Empirical studies suggest the existence of an environmental Kuznets curve: In the initial stages of economic development pollution increases, but eventually the trend is reversed and environmental quality rebounds. Previous efforts to model this phenomenon have relied upon the restrictive assumptions of intergenerational conflicts, ill-defined property rights or higher pollution intensity of more productive capital. This paper develops a simple neoclassical growth model that is free from these assumptions and provides a more general explanation of the evolution of economic growth and environmental quality based on the relative scarcity of capital. The model's predictions are consistent with the environmental Kuznets curve and two other empirical regularities: (i) during the initial stages of economic development, growth is high but there is negligible regulation and expenditures on environmental protection so that pollution levels rise; (ii) at later stages of economic development, better environmental quality is actively pursued, so that pollution is reduced, and economic growth rates are lower. We also show how a pollution tax or tradable permits can only implement the social optimal if accompanied by other taxes on consumption or profits. We solve for the time when environmental quality starts to improve and analyze its determinants. (JEL O13, Q20)

Economic growth and polluting resources: Market equilibrium and optimal policies

Economic Modelling, 2013

This paper develops an endogenous growth model to study the decentralized equilibrium and the optimum conditions in an economy which uses polluting resources. The model includes two policy instruments, a subsidy to final consumption and an emissions tax. It also considers two forms of endogenous technical change, pollution-reducing knowledge and horizontal innovation. We show that, if the efficiency of knowledge to reduce emissions is sufficiently high, a higher output is compatible with lower emissions in both levels and growth rates. Additionally, if the two instruments are used together the economy may achieve a higher output and lower emissions since the subsidy may offset, at least partially, the negative tax effects.

Polluting non-renewable resources, innovation and growth: welfare and environmental policy

Resource and Energy Economics, 2005

We analyze the impact of the pollution generated by the use of non-renewable resources on the standard results of growth models. In this context, we obtain a Hotelling rule which is not a pure efficiency condition any longer. Subsequently, we show that some of the optimal paths' standard properties change: in particular, an increase in the households' psychological discount rate leads to a slower extraction of the resource. Moreover, we present a simple endogenous growth model that allows us to study the effects of an environmental policy aimed at correcting the distortion introduced at the equilibrium. We show that the tax level does not matter, and that a decreasing tax on the resource use yields the optimum.