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Non-Catastrophic Endogenous Growth with Pollution and Abatement

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Abstract

When there are pollution externalities the competitive equilibrium is not Pareto-optimal nor environmentally sustainable even if abatement activities are endogenously decided. In this paper we introduce the possibility of an ecological catastrophe like the one predicted by the global climate change, imposing the constraint of an upper-limit to the pollutants stock. We characterize the socially optimal solution and study conditions for the sustainability of the balanced growth path. We find a trade-off between environmental quality and growth. The rate of growth depends negatively on the weight of environmental care in the utility function and positively on the population growth rate. We show that the emissions reduction recommended in the Kioto protocol is an appropriate policy to avoid the ecological catastrophe and ensure global efficiency and positive long-run growth.

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Paper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2004/80.

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Length: 36 pages
Date of creation: 2004
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Handle: RePEc:cea:doctra:e2004_80

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Keywords: Environment; Externalities; Optimal Growth; Ecological Catastrophe; Sustainability.;

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Cited by:
  1. J., AZNAR-MARQUEZ & Jose-Ramon, RUIZ-TAMARIT, 2005. "Demographic Transition Environmental Concern and the Kuznets Curve," Discussion Papers (ECON - Département des Sciences Economiques), Université catholique de Louvain, Département des Sciences Economiques 2005001, Université catholique de Louvain, Département des Sciences Economiques.

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