External increasing returns, short-lived agents and long-lived waste
AbstractActions that affect environmental quality both influence and respond to macroeconomic variables. Further, many environmental and macroeconomic consequences of current actions will have uncompensated effects that outlive the actors. This paper presents an overlapping-generations model of environmental externalities and capital accumulation: consumption of the old generates long-lived garbage as a by-product, while young agents invest in both capital and destruction of the existing garbage stock. The model also assumes external increasing returns: increases in the capital stock increase the future productivity of capital. In the model, increases in the natural rate of degradation do, and improvements in society's ability to dispose of garbage may, encourage capital accumulation. Multiple Pareto-ranked equilibria can arise as a consequence of the interaction between garbage and capital accumulation. Underaccumulation of garbage, analogous to dynamically inefficient overaccumulation of capital, can arise in the model.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 91-02.
Date of creation: 1990
Date of revision:
Other versions of this item:
- John, A. & Pecchenino, R. & Schmmelpfennig, D. & Schreft, S., 1990. "External Increasing Returns , Short-Lived Agents and Long- Lived Waste," Papers 8903, Michigan State - Econometrics and Economic Theory.
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