Disutility of pollution and endogenous growth

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.     

When Environmental Policy is Superfluous: Growth and Polluting Resources

In a research–driven endogenous growth model, a non–renewable resource gives rise to pollution. Consumption may either grow or decline along the optimal balanced growth path, but the (flow) pollution level necessarily diminishes continuously. Any positive balanced growth path is sustainable. Utility may improve, even though consumption declines. Although positive growth is optimal, the market economy may nevertheless result in permanently declining consumption possibilities. At the same time, a growth–enhancing government policy may improve long–run environmental conditions. The pollution externality does not distort the decisions of the market economy, so that a specific environmental policy is superfluous.
JEL classification : O 41; Q 20; Q 28; Q 32     

Optimal Tax Policy, Market Imperfections, and Environmental Externalities in a Dynamic Optimizing Macro Model

This paper develops a dynamic real business cycle model that highlights pollution externalities (on welfare and production) and market imperfections and uses it to determine the socially optimal tax policy that encompasses labor income, capital income, and emission taxes. We show that the optimal tax on capital and labor income only addresses the production inefficiency (and is time-invariant), while the tax on the environmental externalities affects both the production inefficiency and the environmental spillovers (and is time-varying). More interestingly, the socially optimal emission tax will be characterized by a Keynesian-like stabilizer that is designed to mitigate business cycle fluctuations, i.e., that will stimulate the economy with a lower emission tax during recessions. In a positive analysis, we show that the beneficial effects arising from pollution taxation will become larger the greater is the degree of the firms' monopoly power. In addition, a triple dividend in terms of improving environmental quality and increasing employment and firms' profit can be simultaneously realized if the environmental production externality is more significant and if the elasticity of intertemporal substitution in consumption is relatively small.     

内生增长、政府生产性支出与中国居民消费

中国财政支出的较大一部分用于生产建设,中国居民消费与政府生产性支出表现出稳健的正相关关系,这一事实与从标准的新古典和新凯恩斯模型得出的挤出效应截然不同。本文构建了包含存量和流量两部分政府生产性支出的内生增长模型,研究表明,政府支出增加在提高税负、挤出居民消费的同时,也通过其生产性增加收入、挤入居民消费;政府支出增加究竟挤入还是挤出居民消费取决于两种效应的比较以及政府的生产性支出比重和税负水平。政府生产性支出的最优结构等于其相对生产性之比,政府支出的最优规模等于政府支出的生产性。     

干中学、过度投资和R&D对人力资本积累的“侵蚀效应”

R&D的过度投资对人力资本积累具有"侵蚀效应"。本文提出了一个同时内生化技术进步和人力资本积累的经济增长模型,强调了R&D过程中的两种特征,即R&D过程需要人力资本投入和新技术的研发通过干中学获得,并就R&D对人力资本积累的"侵蚀效应"所造成的负外部性进行了分析。通过比较分散经济均衡和集中经济均衡,本文得出结论:垄断加价及其引致的物质资本和人力资本的过度投资与"侵蚀效应"相互交错、共同作用,会在一定程度上降低人力资本的积累率和经济增长率。     

Optimal fiscal policy in the Uzawa-Lucas model with CES production

This paper devises an endogenous growth model with human capital in the Uzawa-Lucas framework in which the average human capital has a positive external effect on the goods sector. Unlike previous works, this paper assumes that output is produced with a CES technology and analyzes the existence, uniqueness, and stability of equilibrium. Also, a fiscal policy is devised that is capable of providing the required incentives to optimize the competitive equilibrium. In order to correct the market failure caused by the externality, the authors introduce a subsidy to human capital and analyze how it can be financed in an optimal way. Some simulation results are presented.     

Differential Migration Prospects,Skill Formation,and Welfare

This paper develops a one sector, two‐input model with endogenous human capital formation. The two inputs are two types of skilled labor: “engineering,” which exerts a positive externality on total factor productivity, and “law,” which does not. The paper shows that a marginal prospect of migration by engineers increases human capital accumulation of both types of workers (engineers and lawyers), and also the number of engineers who remain in the country. These two effects are socially desirable, since they move the economy from the (inefficient) free‐market equilibrium towards the social optimum. The paper also shows that if the externality effect of engineering is sufficiently powerful, everyone will be better off as a consequence of the said prospect of migration, including the engineers who lose the migration “lottery,” and even the individuals who practice law.     

(In)determinacy, increasing returns, and the optimality of the Friedman rule in an endogenously growing open economy

This paper sets up a monetary endogenous growth model with Benhabib–Farmer production externalities for an open economy, and then uses it to investigate the possibility of indeterminacy. Moreover, the paper examines how the monetary authorities will set its optimal anchor of the money growth rate from the viewpoint of welfare maximization. Several main findings emerge from the analysis. First, when investment does not involve adjustment costs, the monetary equilibrium is locally determinate regardless of the strength of the labor externality and the extent of world capital market imperfections. Second, in the presence of investment adjustment costs, the monetary equilibrium may exhibit indeterminacy when the aggregate increasing returns-to-scale in production is sufficiently strong. Third, in the presence of world capital market imperfections, the Friedman rule of a zero nominal interest rate fails to be optimal. Fourth, in the face of perfect world capital markets, the optimal nominal money growth rate is maintained at the rate that is conformable to the Friedman rule, regardless of whether investment involves adjustment costs or not.     

Human Capital and Overinvestment in R&D*

We introduce a negative effect of technological development on human capital accumulation in a growth model with endogenous innovation and accumulation of human capital. This implies a negative externality of R&D in human capital accumulation. Some calibration exercises suggest that this distortion may be sufficiently strong not only to offset the usual effects of spillovers and of returns to specialization but also to induce overinvestment in R&D.     

内生经济增长理论框架下的市场失效与财政政策

内生经济增长理论认为,知识和人力资本的外部效应与创新带来的垄断势力推动经济增长的同时,也会带来非帕雷托最优的经济增长收入分配的不公平,将阻碍经济增长;加快知识和人力资本积累、促进技术进步以及缓解收入分配不公平的财政政策能纠正市场失效,使长期经济增长达到社会最优.     

When sociable workers pay off: Can firms internalize social capital externalities?

We use an endogenous growth model to contrast the socially optimal allocation of human capital with the decentralized solution, in a context where workers make the choices that determine social capital accumulation. As social capital is expected to increase productivity but is not traded in markets, a positive social capital externality is identified. We discuss the possibility that, in response to this externality, firms subsidize social capital accumulation activities, incurring into additional costs that are recouped through productivity gains. This reaction by firms may be seen as a justification for some corporate social responsibility actions targeted at workers, although a full internalization of the externality does not look achievable in practice.     

CONSUMPTION AND LEISURE EXTERNALITIES, ECONOMIC GROWTH AND EQUILIBRIUM EFFICIENCY

This paper analyzes the effects of consumption and leisure externalities on growth and welfare in a two‐sector endogenous growth model with human capital accumulation. Both types of externalities are shown to affect the long‐run equilibrium and optimal growth rates in a rather different way. The relationship between the steady state of the market and the centrally planned economy is also analyzed. The optimal growth path can be decentralized by resorting to consumption or labor income taxation, whereas capital income should be untaxed. Numerical simulations suggest that growth and welfare effects of mild consumption and leisure externalities may be quantitatively important.     

Does Improved Environmental Policy Enhance Economic Growth?

The environmental impacts on an economy is studied over time using endogenous growth theory. Externalities from the environment on production are central in the analysis, and we examine whether an optimal path realizes more rapid economic growth. The paper focuses mainly on developing countries, where production is largely influenced by the environmental quality. The result of the analysis indicates that the economic growth rate may not depend on the internalization of the environmental externality, but rather on the internalization of the human capital externality. The level of economic activity, however, generally seems to depend on the internalization of both externalities.     

财政政策的供给效应与经济发展

本文分析了发展中国家公共投资对私人资本积累的动态响应。针对公共资本的拥挤性特征 ,同时考虑财政投资可能引起的风险。在不考虑公共投资风险的分权经济中 ,由于公共资本和私人资本都处于短缺状态 ,企业争夺拥挤性公共资本而扩张私人资本的投资行为虽然使经济超常增长 ,但是存在过度投资和过度拥挤。在集中优化模型中 ,如果考虑到公共投资的风险 ,政府通过税收方式弥补公共投资风险 ,同时将企业投资产生的拥挤效应内部化 ,就能消除企业的过度投资和过度拥挤现象 ,使经济保持合理持续的增长。对中国这样的发展中国家 ,需要重视财政的供给效应 ,在经济起飞初期保证一定数量的政府资本性支出是必要的 ,但随着经济的不断发展和政府资本性支出累积的风险增加 ,财政转型十分必要。     

Present bias and the inefficiency of the centralized economy: The role of the elasticity of intertemporal substitution

We analyze an endogenous growth model considering agents with an isoelastic utility. Preferences are characterized by a utility affected by a negative externality, and a level of impatience which decays with the time distance from the present. Agents who cannot commit the actions of their future selves, play a game against them. The stationary equilibrium of this game defines a balanced growth path with a slower growth when played by subsequent central planners than when played by decision makers in the market economy. First, we prove that the fast growing market economy implies higher welfare if the negative externality is small, while the centralized economy is welfare improving above a given threshold for the externality (obtained for a specific family of non-constant discount functions). Secondly, we observe that this threshold increases with the elasticity of intertemporal substitution in consumption. Therefore, the greater this elasticity the more likely it is that the externality lies below this threshold, where policy interventions would not be adequate. Finally, as one would expect, the range of values of the externality for which the market equilibrium provides higher welfare widens the more different from constant discounting time preferences are, due either to a wider range of variation for the instantaneous discount rates or because these decay more slowly.     

Growth and optimal policies in an R&D-growth model with imperfect international capital mobility

In this paper, we examine the effects of international capital mobility on innovation, growth, and optimal growth policies in a small open economy with R&D-driven growth. Households can borrow funds from an imperfect international capital market to finance their investment in R&D firms. We show that the economy can reach a higher growth rate if international capital is more mobile. This result is consistent with recent empirical findings. Moreover, we show that the common growth-enhancing policies, such as patent protection and the R&D subsidies, have an additional negative welfare effect when households can access the international capital market. Accordingly, the optimal patent protection and R&D subsidy should be smaller when the degree of international capital mobility is higher.     

Misallocation of talent,teachers’ human capital,and development in Brazil

In this study, we investigate the allocation of talent in an economy where teachers play a critical role in developing the human capital of the workforce. To this end, we formulate a Roy model with externality in the occupational choice, as the quantity and quality of teachers are key determinants of workers’ human capital. Our analysis suggests that when individuals with greater abilities opt for teaching careers, the entire workforce benefits. However, frictions in the labor and educational goods markets may lead to a suboptimal allocation of talent and hinder economic growth and development. Our model is calibrated to the Brazilian economy, and our findings reveal a negative correlation between frictions in the teacher’s occupation and per capita output in the Brazilian states. Our results indicate that eliminating friction in the labor market could result in a 16.94% increase in Brazilian income.     

Green Attitude and Economic Growth

We analyze the interdependence between green attitude and equilibrium development of environmental quality in an endogenous growth model. Individuals take only part of their impact on pollution into account, hence there is a negative externality of capital accumulation on environmental quality. Increasing wealth or increasing pollution enhance green attitude and reduce the externality, because individuals care more about the environment if their income is higher or if pollution is more obvious. The time path of pollution as well as the evolution of equilibrium growth are shown to depend crucially on the determinants of green attitude. Ongoing growth may lead to complete internalization of the environmental externality if green attitude improves with increasing wealth, e.g. as a consequence of an increase in environmental education. In contrast, if green attitude is determined exclusively by the level of environmental quality, pollution remains at a suboptimally high level. The interdependence of wealth and pollution in the determination of environmental awareness implies more complex dynamics. Capital growth enhances green attitude and thereby decreases pollution. Improved environmental quality in turn may increase capital growth due to less green attitude and therefore slow down convergence to the sustainable balanced growth path.     

Constant-returns endogenous growth with pollution control

Pollution control with positive externality from the government is incorporated in an endogenous growth model with AK production function. The result indicate that if consumption and abatement expenditure grows at a constant rate, pollution stock will have smaller growth rate. The growth rate of consumption in a command economy will in general be greater than in a competitive economy. A greater intertemporal elasticity of substitution will result in a lower growth rate only if the household's preference parameter against pollution is sufficiently small. The development strategy of pursuing higher growth rate accompanied by more pollution in the early stage of economic development is economically justifiable. The utility in a wealthier economy is always higher in all stages of development than in a poorer economy, as is the pollution stock, although it may converge in the steady state.An earlier version of this paper was presented at the International Congress on Modelling and Simulation, December 6–10, 1993, Perth, Australia. Constructive comments and suggestions from two anonymous reviewers of this journal are greatly appreciated, and so is the financial support from the Bureau of Industrial Development in Taiwan.     

On Equilibrium Dynamics Under Externalities in a Model of Economic Development

This paper studies a discrete-time version of a model of economic development proposed by Lucas, in which the average stock of human capital produces a positive externality in the production of the physical capital good. It establishes the existence of equilibrium programmes from arbitrary initial conditions, and of an equilibrium steady-state programme. The principal results are concerned with the global dynamic behaviour of equilibrium programmes off the steady state. They show that the asymptotic growth rates of consumption, physical and human capital on any equilibrium programme will equal the growth rates of the respective variables along the equilibrium steady state
JEL Classification Numbers: C62, D90, O41