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Scarcity, regulation and endogenous technical progress

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  • Boucekkine, Raouf
  • Hritonenko, Natali
  • Yatsenko, Yuri

Abstract

This paper studies to which extent a firm using a scarce resource input and facing environmental regulation can still manage to have a sustainable growth of output and profits. The firm has a vintage capital technology with two complementary factors, capital and a resource input subject to quota, the latter being increasingly scarce through an exogenously rising price. The firm can scrap obsolete capital and invest in adoptive and/or innovative R&D resource-saving activities. Within this realistic framework, we first characterize long-term growth regimes driven by scarcity (induced-innovation) vs. long-term growth regimes driven by quota regulation (Porter-like innovation). More importantly, we study the interaction between scarcity and quota regulation. In particular, we show that there exists a threshold level for the growth rate of the resource price above which the Porter mechanism is killed while the scarcity-induced growth regime may emerge. Symmetrically, we also find that there must exist a threshold value for the environmental quota under which the growth regime induced by scarcity vanishes while the Porter-like growth regime may survive.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Mathematical Economics.

Volume (Year): 47 (2011)
Issue (Month): 2 (March)
Pages: 186-199

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Handle: RePEc:eee:mateco:v:47:y:2011:i:2:p:186-199

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Web page: http://www.elsevier.com/locate/jmateco

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Keywords: Vintage capital Technological progress Dynamic optimization Sustainability Scarcity Environmental regulation;

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References

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  1. Benhabib, Jess & Rustichini, Aldo, 1990. "Vintage Capital, Investment And Growth," Working Papers, C.V. Starr Center for Applied Economics, New York University 90-22, C.V. Starr Center for Applied Economics, New York University.
  2. Feichtinger, Gustav & Hartl, Richard F. & Kort, Peter M. & Veliov, Vladimir M., 2005. "Environmental policy, the porter hypothesis and the composition of capital: Effects of learning and technological progress," Journal of Environmental Economics and Management, Elsevier, vol. 50(2), pages 434-446, September.
  3. Boucekkine, Raouf, et al, 1998. " Creative Destruction, Investment Volatility, and the Average Age of Capital," Journal of Economic Growth, Springer, Springer, vol. 3(4), pages 361-84, December.
  4. BOUCEKKINE, Raouf & RUIZ-TAMARIT, José Ramon, . "Special functions for the study of economic dynamics: The case of the Lucas-Uzawa model," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -2003, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. BOUCEKKINE, Raouf & HRITONENKO, Natali & YATSENKO, Yuri, 2008. "Optimal firm behavior under environmental constraints," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2008024, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Tsur, Yacov & Zemel, Amos, 2005. "Scarcity, growth and R&D," Journal of Environmental Economics and Management, Elsevier, vol. 49(3), pages 484-499, May.
  7. Richard G. Newell & Adam B. Jaffe & Robert N. Stavins, 1999. "The Induced Innovation Hypothesis And Energy-Saving Technological Change," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(3), pages 941-975, August.
  8. Raouf Boucekkine & David de la Croix & Omar Licandro, 2006. "Vintage Capital," Economics Working Papers, European University Institute ECO2006/8, European University Institute.
  9. Boucekkine, Raouf & Germain, Marc & Licandro, Omar, 1997. "Replacement Echoes in the Vintage Capital Growth Model," Journal of Economic Theory, Elsevier, Elsevier, vol. 74(2), pages 333-348, June.
  10. Omar Licandro & Luis Puch & Antonio Sampayo, 2008. "A Vintage Model of Trade in Secondhand Markets and the Lifetime of Durable Goods," Mathematical Population Studies, Taylor & Francis Journals, vol. 15(4), pages 249-266.
  11. Hart, Rob, 2004. "Growth, environment and innovation--a model with production vintages and environmentally oriented research," Journal of Environmental Economics and Management, Elsevier, vol. 48(3), pages 1078-1098, November.
  12. Kamien, Morton I & Schwartz, Nancy L, 1969. "Induced Factor Augmenting Technical Progress from a Microeconomic Viewpoint," Econometrica, Econometric Society, Econometric Society, vol. 37(4), pages 668-84, October.
  13. Feichtinger, Gustav & Hartl, Richard F. & Kort, Peter M. & Veliov, Vladimir M., 2006. "Capital accumulation under technological progress and learning: A vintage capital approach," European Journal of Operational Research, Elsevier, Elsevier, vol. 172(1), pages 293-310, July.
  14. Adam Jaffe & Richard Newell & Robert Stavins, 2002. "Environmental Policy and Technological Change," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 22(1), pages 41-70, June.
  15. Malcomson, James M., 1975. "Replacement and the rental value of capital equipment subject to obsolescence," Journal of Economic Theory, Elsevier, Elsevier, vol. 10(1), pages 24-41, February.
  16. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, Elsevier, vol. 5(3), pages 395-418, December.
  17. David Popp, 2002. "Induced Innovation and Energy Prices," American Economic Review, American Economic Association, American Economic Association, vol. 92(1), pages 160-180, March.
  18. Kenneth Arrow & Partha Dasgupta & Lawrence Goulder & Gretchen Daily & Paul Ehrlich & Geoffrey Heal & Simon Levin & Karl-Göran Mäler & Stephen Schneider & David Starrett & Brian Walker, 2004. "Are We Consuming Too Much?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 18(3), pages 147-172, Summer.
  19. Feichtinger, Gustav & Hartl, Richard F. & Kort, Peter M. & Veliov, Vladimir M., 2008. "Financially constrained capital investments: The effects of disembodied and embodied technological progress," Journal of Mathematical Economics, Elsevier, Elsevier, vol. 44(5-6), pages 459-483, April.
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Citations

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Cited by:
  1. BRECHET, Thierry & HRITONENKO, Natali & YATSENKO, Yuri, . "Adaptation and mitigation in long-term climate policy," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -2479, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Raouf Boucekkine & David de la Croix and Omar Licandro, 2011. "Vintage Capital Growth Theory: Three Breakthroughs," Working Papers, Barcelona Graduate School of Economics 565, Barcelona Graduate School of Economics.
  3. Kredler, Matthias, 2014. "Vintage human capital and learning curves," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 40(C), pages 154-178.
  4. Raouf Boucekkine & Natali Hritonenko & Yuri Yatsenko, 2013. "Health, Work Intensity, and Technological Innovations," Working Papers, HAL halshs-00805199, HAL.
  5. Raouf Boucekkine & Natali Hritonenko & Yuri Yatsenko, 2011. "Sustainable growth under pollution quotas: optimal R&D, investment and replacement policies," Working Papers, HAL halshs-00632887, HAL.
  6. Raouf Boucekkine & David De La Croix & Omar Licandro, 2011. "Vintage capital theory: Three breakthroughs," Working Papers, HAL halshs-00599074, HAL.

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