Optimal Induced Innovation and Growth with Congestion of a Limited Natural Resource
AbstractIn a simple Neoclassical Growth Model with endogenous technical change, I expand on the hypothesis of Induced Innovation including a production externality from a xed input, called `land', which represents the carrying capacity of the earth's atmosphere. Land is assumed to be congested by the use of labor and capital in production. A market economy where land is free will fail to reach a steady state, and may end up in either of three possible cases: (i) a catastrophe driven by overaccumulation; (ii) a state in which Induced Innovation stops capital deepening but not environmental decline; (iii) a path of perpetual decumulation of capital resembling an industrial counterrevolution. A planned economy, instead, will assign a shadow-price to land, thus setting in motion the Induced Innovation engine and fostering land-augmenting technological progress which will reduce environmental stress. The unique equilibrium if this economy is found to be locally asymptotically stable in the numerical analysis for substitution elasticities smaller than 1. The corresponding direction of technical change is characterized by constant shares of all inputs, a positive growth rate of labor- and land-augmenting technologies, and by a rate of growth of capital-augmentation equal to zero.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 11525.
Date of creation: 10 Nov 2008
Date of revision:
Induced Innovation; Climate Change; Technological Change; Functional Distribution of Income;
Find related papers by JEL classification:
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
- Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-11-18 (All new papers)
- NEP-DGE-2008-11-18 (Dynamic General Equilibrium)
- NEP-ENV-2008-11-18 (Environmental Economics)
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