Environment, growth, and optimal policy design

Abstract A simple dynamic representative agent model is presented in which the environment enters into the utility and production functions to analyze long-run economic growth under optimal policy designs. The policies that are considered are production taxes or subsidies and quantitative restrictions. Optimal levels of these instruments are designed by a regulator such that (a) the equilibrium growth path mimics the efficient growth path, and (b) the letter is maximized. One finding is that a combination of quantity controls and optimal tax (subsidy) schemes leads to a higher level of social welfare than an optimal tax (subsidy) scheme alone.

[1]  P. Romer.  Endogenous Technological Change , 1989, Journal of Political Economy.

[2]  Robert A. Becker,et al.  Intergenerational equity: The capital-environment trade-off , 1982 .

[3]  B. A. Forster.  OPTIMAL CAPITAL ACCUMULATION IN A POLLUTED ENVIRONMENT , 1973 .

[4]  J. Krautkraemer.  Resource amenities and the preservation of natural environments , 1985 .

[5]  Environment, trade, and strategic interdependence: A simple model with implications for NAFTA , 1992 .

[6]  R. Solow,et al.  Intergenerational Equity and Exhaustable Resources , 1973 .

[7]  R. Lucas.  On the Mechanics of Economic Development , 1988 .

[8]  John M. Hartwick,et al.  Substitution Among Exhaustible Resources and Intergenerational Equity , 1978 .

[9]  N. Shafik.  Economic Development and Environmental Quality: An Econometric Analysis , 1994 .

[10]  Vernon L. Smith,et al.  Control theory applied to natural and environmental resources an exposition , 1977 .

[11]  R. D'arge,et al.  Economic Growth and the Environment , 1973 .

[12]  Patrick Low,et al.  International trade and the environment , 1996 .

[13]  S. Rebelo,et al.  Long-Run Policy Analysis and Long-Run Growth , 1990, Journal of Political Economy.

[14]  R. Solow,et al.  Extraction Costs in the Theory of Exhaustible Resources , 1976 .

[15]  R. Ayres.  Optimal investment policies with exhaustible resources: An information-based model , 1988 .

[16]  R. Barro.  Government Spending in a Simple Model of Endogeneous Growth , 1988, Journal of Political Economy.

[17]  H. Mohtadi,et al.  Endogenous Growth, Health and the Environment , 1992 .

[18]  N. Shafik,et al.  Economic Growth and Environmental Quality Time-Series and Cross-Country Evidence , 1992 .