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Environmental and population externalities

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  • Frank Joest

    ()
    (University of Heidelberg, Department of Economics)

  • Martin Quaas

    ()
    (UFZ-Centre for Environmental Research Leipzig-Halle, Department of Ecological Modelling)

Abstract

In this paper, we investigate the external effects of the parent's decisions on the number of newly born children and the firm's decisions on the amount of polluting emissions that occur in industrial production. We employ an optimal control model which comprises three stock variables representing population, the economic capital stock and the pollutant immissions in the natural environment. We distinguish two different types of households, in which the decision on the number of births takes place. These two types may be regarded as two extremes: dynastic households, in which the family sticks together forever and micro-households, in which children leave their parent's household immediately after birth. We conclude that in both cases the decentralized outcome is not optimal due to two externalities: one occurs in the individual decision on polluting emissions, the other one in the individual decision on the number of births. It turns out that whereas the environmental externality is of the same form in both cases, the type of external effect from the household's decision on fertility is qualitatively different. The different types of population externalities require different policy instruments in order to internalize them. We discuss a Pigouvian tax on emissions as well as taxes on population: if an appropriate tax on the household size is applied in the case of dynastic households and an appropriate tax on children is applied in the case of small households a first best development of the economy is obtained.

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File URL: http://www.uni-heidelberg.de/md/awi/forschung/dp427.pdf
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Bibliographic Info

Paper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0427.

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Length: 31 pages
Date of creation: Aug 2006
Date of revision: Aug 2006
Handle: RePEc:awi:wpaper:0427

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Keywords: sustainability; endogenous fertility; externalities;

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  1. Harford, Jon D., 1997. "Stock Pollution, Child-Bearing Externalities, and the Social Discount Rate," Journal of Environmental Economics and Management, Elsevier, vol. 33(1), pages 94-105, May.
  2. Pethig, Rudiger, 2006. "Non-linear production, abatement, pollution and materials balance reconsidered," Journal of Environmental Economics and Management, Elsevier, vol. 51(2), pages 185-204, March.
  3. Michel, Philippe, 1982. "On the Transversality Condition in Infinite Horizon Optimal Problems," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 975-85, July.
  4. Edward L. Glaeser & Gary S. Becker & Kevin M. Murphy, 1999. "Population and Economic Growth," American Economic Review, American Economic Association, American Economic Association, vol. 89(2), pages 145-149, May.
  5. Partha Dasgupta, 2000. "Population and Resources: An Exploration of Reproductive and Environmental Externalities," Population and Development Review, The Population Council, Inc., The Population Council, Inc., vol. 26(4), pages 643-689.
  6. Robinson, James A. & Srinivasan, T.N., 1993. "Long-term consequences of population growth: Technological change, natural resources, and the environment," Handbook of Population and Family Economics, Elsevier, in: M. R. Rosenzweig & Stark, O. (ed.), Handbook of Population and Family Economics, edition 1, volume 1, chapter 21, pages 1175-1298 Elsevier.
  7. Raut, L K & Srinivasan, T N, 1994. "Dynamics of Endogenous Growth," Economic Theory, Springer, Springer, vol. 4(5), pages 777-90, August.
  8. Till Requate & Mark B. Cronshaw, 1997. "Population size and environmental quality," Journal of Population Economics, Springer, Springer, vol. 10(3), pages 299-316.
  9. David N. Weil & Oded Galor, 1999. "From Malthusian Stagnation to Modern Growth," American Economic Review, American Economic Association, American Economic Association, vol. 89(2), pages 150-154, May.
  10. Harford, Jon D, 1998. "The Ultimate Externality," American Economic Review, American Economic Association, American Economic Association, vol. 88(1), pages 260-65, March.
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