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Conservation Capital And Sustainable Economic Growth

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  • Ramirez, Donna Theresa J.
  • Khanna, Madhu
  • Zilberman, David

Abstract

This paper develops an endogenous growth model which links pollution to ineffective input-use, which can be reduced through conservation capital investment. It derives the conditions under which individual preferences for environmental quality and private investment in conservation capital can lead to non-decreasing environmental quality and balanced growth in an unregulated and in a regulated regime. In the absence of regulation, balanced growth can lead to improvement in environmental quality as long as the rate of growth is low. The extent to which the growth rate is low depends upon preference for environmental quality, interest and discount rates, productivity of conservation capital, and price of the polluting input. Under an emissions tax regime, sustainable balanced growth requires the interest rate to lie between the amenity value derived by consumers from environmental improvement and the marginal return to the firm due to the regenerative capacity of the environment. This implies that interest rate must be high enough to encourage consumers to forego consumption but low enough to constrain the productivity of conservation capital and restrain usage of the polluting input. The emissions tax is also shown to be equivalent to a pollution permit system or to a two-instrument scheme composed of a tax on polluting input and a subsidy on conservation capital investment.

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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2002 Annual meeting, July 28-31, Long Beach, CA with number 19846.

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Date of creation: 2002
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Handle: RePEc:ags:aaea02:19846

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Keywords: Environmental Economics and Policy; International Development;

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References

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  1. Smulders, J.A., 1995. "Environmental policy and sustainable economic growth: An endogenous growth perspective," Open Access publications from Tilburg University urn:nbn:nl:ui:12-153415, Tilburg University.
  2. Ploeg, F. van der & Withagen, C.A.A.M., 1991. "Pollution control and the Ramsey problem," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3107039, Tilburg University.
  3. Paul M. Romer, 1994. "The Origins of Endogenous Growth," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 3-22, Winter.
  4. Butter, F.A.G. den & Hofkes, M.W., 1993. "Sustainable development with extractive and non-extractive use of the environment in production," Serie Research Memoranda 0055, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  5. Bovenberg, A.L. & Mooij, R.A. de, 1997. "Environmental tax reforms and endogenous growth," Open Access publications from Tilburg University urn:nbn:nl:ui:12-74434, Tilburg University.
  6. Chung-Huang Huang & Deqin Cai, 1994. "Constant-returns endogenous growth with pollution control," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 4(4), pages 383-400, August.
  7. Gary S. Becker & Kevin M. Murphy & Robert Tamura, . "Human Capital, Fertility, and Economic Growth," University of Chicago - Population Research Center 90-5a, Chicago - Population Research Center.
  8. Smulders, Sjak & Gradus, Raymond, 1996. "Pollution abatement and long-term growth," European Journal of Political Economy, Elsevier, vol. 12(3), pages 505-532, November.
  9. Keeler, Emmett & Spence, Michael & Zeckhauser, Richard, 1972. "The optimal control of pollution," Journal of Economic Theory, Elsevier, vol. 4(1), pages 19-34, February.
  10. Ligthart, J.E. & Ploeg, F. van der, 1994. "Pollution, the cost of public funds and endogenous growth," Open Access publications from Tilburg University urn:nbn:nl:ui:12-376258, Tilburg University.
  11. Raymond Gradus & Sjak Smulders, 1993. "The trade-off between environmental care and long-term growth—Pollution in three prototype growth models," Journal of Economics, Springer, vol. 58(1), pages 25-51, February.
  12. Musu, Ignazio, 1996. "Transitional Dynamics to Optimal Sustainable Growth," CEPR Discussion Papers 1282, C.E.P.R. Discussion Papers.
  13. Khanna, Madhu & Zilberman, David, 1997. "Incentives, precision technology and environmental protection," Ecological Economics, Elsevier, vol. 23(1), pages 25-43, October.
  14. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
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Cited by:
  1. Psaltopoulos, Demetris & Balamou, Eudokia & Skuras, Dimitris & Ratinger, Tomas & Sieber, Stefan, 2011. "Modelling the impacts of CAP Pillar 1 and 2 measures on local economies in Europe: Testing a case study-based CGE-model approach," Journal of Policy Modeling, Elsevier, vol. 33(1), pages 53-69, January.

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