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Environmental discounting in a small open economy with a renewable resource

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  • Koichi Futagami

    ()
    (Graduate School of Economics, Osaka University)

  • Yasuhiro Nakamoto

    ()
    (Faculty of Economics, Kyushu Sangyo University)

Abstract

We construct a small open economy model with a renewable resource. Households have an endogenous time preference rate that depends on the level of the renewable resource in the domestic economy. Although households know that the degree of own patience depends on its resource, we assume that households believe that they cannot control the motion of the aggregate renewable resource. This is because they think that their impact is negligible so that there exists an externality in the form of the patience of the households. Based on this framework, we analyze the dynamic character of the steady state and show that the equilibrium path may be indeterminate. We next examine the welfare effects of tax policies. Finally, we investigate socially optimal tax policies.

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File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/1022.pdf
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Bibliographic Info

Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 10-22.

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Length: 30 pages
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:osk:wpaper:1022

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Web page: http://www.econ.osaka-u.ac.jp/
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Keywords: Endogenous time preference rate; Indeterminacy; Renewable resources; Optimal tax policy;

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  1. Ayong Le Kama, Alain D., 2001. "Sustainable growth, renewable resources and pollution," Journal of Economic Dynamics and Control, Elsevier, vol. 25(12), pages 1911-1918, December.
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