Environmental Pollution, Sustainable Growth and Optimal Economic Policies
Potential conflicts between economic growth and environmental degradation are central to the sustainable development debate. In a Schumpeterian model of endogenous growth with vertical innovations, we introduce non-renewable resources which cause flow pollution problems. First, we examine the conditions under which sustainable growth is both feasible and optimal; more specifically, we perform some comparative statics exercises to analyze the effects of parameter variations arising from the economic environment on the steady-state growth rate. Then, we study the equilibria in a decentralized economy compatible with our model, and we derive the precise levels of economic policy instruments that allow the implementation of the optimum.
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