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Optimal Waste Control with Abatement and Productive Capital Stocks

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  • Enrico Saltari

    ()
    (Department of Economics and Law, Università "La Sapienza" Roma)

  • Giuseppe Travaglini

    ()
    (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo")

Abstract

In this paper we address the control problem of a social optimum in presence of waste and capital stocks. We address this problem in two stages. In the first, we suppose that output is fixed; next, we endogenize output allowing for growth. The analytical framework is simple. Consumption is assumed to generate an undesirable residue. Society can control waste accumulation using abatement capital, and rise output using productive capital which accumulates over time. We have three main results. (1) On the analytical ground we are able to find a closed form solution to the optimal consumption with waste, abatement and productive capital stocks. (2) For the case of fixed output, we get a solution where stocks and flows affect the dynamics of the system. Environmental policies may have permanent effects on the level of variables. Then, (3) when waste and abatement capital are embedded in a classical growth model, we obtain an Environmental Keynes-Ramsey rule which states that the growth rate of the productive capital is positive if and only if its net marginal productivity is greater than the net social cost it generates, given by the marginal disutility of waste weighted by its shadow cost.

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File URL: http://www.econ.uniurb.it/RePEc/urb/wpaper/WP_13_01.pdf
File Function: First version, 2013
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Bibliographic Info

Paper provided by University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini in its series Working Papers with number 1301.

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Length: 33 pages
Date of creation: 2013
Date of revision: 2013
Handle: RePEc:urb:wpaper:13_01

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Web page: http://www.econ.uniurb.it/
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Keywords: Abatement capital; waste accumulation; optimal control; Pigouvian taxes and subsidies; output growth;

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