Pollution externalities in a Schumpeterian growth model

Koesler, Simon

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URL: http://ub-madoc.bib.uni-mannheim.de/3001
URN: urn:nbn:de:bsz:180-madoc-30014
Document Type: Working paper
Year of publication: 2010
The title of a journal, publication series: None
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: Q56 Q55 Q51 O41 ,
Subject headings (SWD): Umweltbelastung , Wachstumstheorie , Endogenes Wirtschaftswachstum , Technischer Fortschritt , Umweltökonomie , Theorie
Keywords (English): economic growth , endogenous pollution intensity , Schumpeter
Abstract: This paper extends a standard Schumpeterian growth model to include an environmental dimension. Thereby, it explicitly links the pollution intensity of economic activity to technological progress. In a second step, it investigates the effect of pollution on economic growth under the assumption that pollution intensities are related to technological progress. Several conclusions emerge from the model. In equilibrium, the economy follows a balanced growth path. The effect of pollution on the economic growth rate vitally depends on the households' degree of pollution aversion and on the link between pollution intensity and the technology level. The decentralized solution does not meet the social optimum, though the social optimum can be implemented through the introduction of subsidies and pollution permits. Expectedly, the introduction of a pollution threshold stalls growth if pollution is not decoupled from economic growth and the possibility of pollution abatement allows the economy to grow at a higher rate.
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