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A Positive Model of Growth and Pollution Controls

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  • Larry E. Jones
  • Rodolfo E. Manuelli

Abstract

The most recent addition to the economics of gloom concerns the interplay between income and environmental degradation. The main question raised is whether or not continued environmental degradation is a necessary part of the process of industrialization. Will pollution continue to increase without bound as more and more countries pass through the development phase or will it be controlled? Intuitively, if 'clean air' is a normal good, we would expect that societies might be 'self-regulating' in the sense that as income increases, pollution controls also increase. However, this intuition is somewhat misleading as the presence of external effects is an essential feature of environmental regulation. This paper describes a growth model in which pollutants are internal to a jurisdiction. To this end we develop a model of the joint determination of the rate of development of the economy through market interactions and the extent of pollution regulation through collective decision making. We show that depending on the collective decision making mechanism in place, the time path of pollution can display an inverted U shape, a 'sideways mirrored' S, or an increasing (but bounded) level over time. This paper contributes to the literature on both the large differences in income per capita across countries as well as the discrepancies in their growth rates. It shows that by relying on collective decision making mechanisms to choose policies, the dynamics of convex models can resemble those usually ascribed to models of multiple equilibria.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5205.

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Date of creation: Aug 1995
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Handle: RePEc:nbr:nberwo:5205

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  1. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
  2. Easterly, William, 1994. "Economic stagnation, fixed factors, and policy thresholds," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 525-557, June.
  3. Rodrik, Dani & Alesina, Alberto, 1994. "Distributive Politics and Economic Growth," Scholarly Articles 4551798, Harvard University Department of Economics.
  4. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-34, August.
  5. Gene M. Grossman & Alan B. Krueger, 1994. "Economic Growth and the Environment," NBER Working Papers 4634, National Bureau of Economic Research, Inc.
  6. Jones, Larry E. & Manuelli, Rodolfo E., 1992. "Finite lifetimes and growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 171-197, December.
  7. Milgrom, P. & Shannon, C., 1991. "Monotone Comparative Statics," Papers 11, Stanford - Institute for Thoretical Economics.
  8. Eric O'N. Fisher & Charles van Marrewijk, 1998. "Pollution and economic growth," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 7(1), pages 55-69.
  9. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  10. Low, P., 1992. "International Trade and the Environment," World Bank - Discussion Papers 159, World Bank.
  11. Nancy L. Stokey, 1990. "Human Capital, Product Quality, and Growth," Discussion Papers 883, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Boldrin, Michele, 1992. "Dynamic externalities, multiple equilibria, and growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 198-218, December.
  13. Stokey, Nancy L, 1988. "Learning by Doing and the Introduction of New Goods," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 701-17, August.
  14. Gene M. Grossman & Alan B. Krueger, 1991. "Environmental Impacts of a North American Free Trade Agreement," NBER Working Papers 3914, National Bureau of Economic Research, Inc.
  15. Glomm, Gerhard & Ravikumar, B., 1996. "Endogenous public policy and multiple equilibria," European Journal of Political Economy, Elsevier, vol. 11(4), pages 653-662, April.
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