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Environmental discounting in a small open economy with a renewable resource

Author

Listed:
  • 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.

Suggested Citation

  • Koichi Futagami & Yasuhiro Nakamoto, 2010. "Environmental discounting in a small open economy with a renewable resource," Discussion Papers in Economics and Business 10-22, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:1022
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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/1022.pdf
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    References listed on IDEAS

    as
    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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    More about this item

    Keywords

    Endogenous time preference rate; Indeterminacy; Renewable resources; Optimal tax policy;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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