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Implementing Steady State Efficiency in Overlapping Generations Economies with Environmental Externalities

Listed author(s):
  • NGUYEN THANG DAO
  • JULIO DÁVILA

We consider in this paper overlapping generations economies with pollution resulting from both consumption and production. The competitive equilibrium steady state is compared to the optimal steady state from the social planner's viewpoint. We show that the dynamical inefficiency of a competitive equilibrium steady state with capital–labor ratio exceeding the golden rule ratio still holds. Moreover, the range of dynamically efficient steady state capital ratios increases with the effectiveness of the environment maintenance technology, and decreases for more polluting production technologies. We characterize some tax and transfer policies that decentralize as a competitive equilibrium outcome the transition to the social planner's steady state.

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File URL: http://hdl.handle.net/10.1111/jpet.12073
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Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 16 (2014)
Issue (Month): 4 (August)
Pages: 620-649

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Handle: RePEc:bla:jpbect:v:16:y:2014:i:4:p:620-649
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  1. María-José Gutiérrez, 2008. "Dynamic Inefficiency in an Overlapping Generation Economy with Pollution and Health Costs," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(4), pages 563-594, August.
  2. Raymond Gradus & Sjak Smulders, 1993. "The trade-off between environmental care and long-term growth—Pollution in three prototype growth models," Journal of Economics, Springer, vol. 58(1), pages 25-51, February.
  3. Pierre-André Jouvet & Pierre Pestieau & Gregory Ponthiere, 2010. "Longevity and environmental quality in an OLG model," Journal of Economics, Springer, vol. 100(3), pages 191-216, July.
  4. John, A & Pecchenino, R, 1994. "An Overlapping Generations Model of Growth and the Environment," Economic Journal, Royal Economic Society, vol. 104(427), pages 1393-1410, November.
  5. John, A. & Pecchenino, R. & Schimmelpfennig, D. & Schreft, S., 1995. "Short-lived agents and the long-lived environment," Journal of Public Economics, Elsevier, vol. 58(1), pages 127-141, September.
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