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Does Technical Progress Increase Long-Run Welfare?

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  • Stefano Bartolini

    ()

  • Luigi Bonatti

    ()

Abstract

We study an economy where households invest in capital and cause negative externalities on a renewable resource entering their utility function. There are also endogenous technical progress boosting labor productivity and the possibility of investing in resource-saving technical progress. Within this setup, we compare two regimes. Under “laissez-faire”, households ignore the externalities they cause: the resource is asymptotically depleted and perpetual economic growth is generated, but households’ welfare remains stagnant in the long run. Under an authority imposing the internalization of the externalities, long-run growth tends to be depressed but the resource is preserved and households’ welfare increases forever.

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Bibliographic Info

Paper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 435.

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Date of creation: Sep 2004
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Handle: RePEc:usi:wpaper:435

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Keywords: Endogenous growth; Induced technical progress; Market failures; Externalities;

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  1. Oswald, Andrew J, 1997. "Happiness and Economic Performance," Economic Journal, Royal Economic Society, vol. 107(445), pages 1815-31, November.
  2. de Bruyn, S. M. & van den Bergh, J. C. J. M. & Opschoor, J. B., 1998. "Economic growth and emissions: reconsidering the empirical basis of environmental Kuznets curves," Ecological Economics, Elsevier, vol. 25(2), pages 161-175, May.
  3. Ayres, Robert U., 1995. "Economic growth: politically necessary but not environmentally friendly," Ecological Economics, Elsevier, vol. 15(2), pages 97-99, November.
  4. Daron Acemoglu, 2003. "Labor- And Capital-Augmenting Technical Change," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 1-37, 03.
  5. Daron Acemoglu, 2001. "Directed Technical Change," NBER Working Papers 8287, National Bureau of Economic Research, Inc.
  6. Smulders, J.A., 2005. "Endogenous technological change, natural resources and growth," Open Access publications from Tilburg University urn:nbn:nl:ui:12-146711, Tilburg University.
  7. Toman, Michael & Simpson, R. David & Ayres, Robert, 2004. "Scarcity and Growth in the New Millennium: Summary," Discussion Papers dp-04-01, Resources For the Future.
  8. Kaufmann, Robert K. & Cleveland, Cutler J., 1995. "Measuring sustainability: needed--an interdisciplinary approach to an interdisciplinary concept," Ecological Economics, Elsevier, vol. 15(2), pages 109-112, November.
  9. Emmanuel M. Drandakis & Edmond S. Phelps, 1965. "A Model of Induced Invention, Growth and Distribution," Cowles Foundation Discussion Papers 186, Cowles Foundation for Research in Economics, Yale University.
  10. Bartolini, Stefano & Bonatti, Luigi, 2002. "Environmental and social degradation as the engine of economic growth," Ecological Economics, Elsevier, vol. 43(1), pages 1-16, November.
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