Disutility of pollution and endogenous growth |
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Authors: | Philippe Michel Gilles Rotillon |
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Institution: | (1) Institut Universitaire de France et GREQAM, Université d Aix-Marseille II, 2 rue de la Vieille Charité, 13002 Marseille, France;(2) Université du Maine et MODEM, Université Paris X, 200 av. de la République, 92001 Nanterre cedex, France |
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Abstract: | Endogenous growth is generally built on a positive externality hypothesis which is the opposite of a negative externality caused by pollution. We study a linear technology with simple assumption: an aggregate capital stock which represents a learning by doing effect and a pollution flow proportional to production. In this framework, we analyse the precise effects on growth of the disutility of pollution and its interaction with the utility of consumption in an economy without abatement technology. The decentralized equilibrium always leads to unlimited growth, but optimal growth is often limited (the negative effect of pollution dominating the positive effect of learning by doing). In this case, the optimal policy which leads the decentralized economy to follow the optimal growth path is to tax capital; in contrast with the optimal subsidy policy in an economy without pollution. When an abatement technology is introduced, the optimal solution can lead the economy to unlimited growth, whatever the form of the utility function. |
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Keywords: | Environment pollution endogenous growth pollution disutility |
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