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Environmental and population externalities

  • JÖST, FRANK
  • QUAAS, MARTIN F.

We analyze the external effects that arise in the decisions of firms on polluting emissions and in the decisions of parents on the number of births in an optimal control model with three stock variables representing population, economic capital, and pollution. We distinguish two different types of households, which represent opposite ends of a spectrum of potential familial structures: ‘dynastic households’, in which the family sticks together forever and ‘micro-households’, in which children leave their parent's household immediately after birth. We show that the decision of parents on the number of births involves an externality that is qualitatively different for both types of familial structure. Hence, population policy should be different, according to the type of household. A first best result may be obtained in the case of dynastic households if an appropriate tax on the household size is applied, or, in the case of micro-households, if an appropriate tax on children is applied.

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Article provided by Cambridge University Press in its journal Environment and Development Economics.

Volume (Year): 15 (2010)
Issue (Month): 01 (February)
Pages: 1-19

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Handle: RePEc:cup:endeec:v:15:y:2010:i:01:p:1-19_00
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  1. Srinivasan, T.N. & Robinson, J.A., 1995. "Long-Term Consequences of Population Growth: Technological Change, Natural Resources, and the Environment," Papers 748, Yale - Economic Growth Center.
  2. Partha Dasgupta, 2000. "Population and Resources: An Exploration of Reproductive and Environmental Externalities," Population and Development Review, The Population Council, Inc., vol. 26(4), pages 643-689.
  3. Edward L. Glaeser & Gary S. Becker & Kevin M. Murphy, 1999. "Population and Economic Growth," American Economic Review, American Economic Association, vol. 89(2), pages 145-149, May.
  4. Michel, Philippe, 1982. "On the Transversality Condition in Infinite Horizon Optimal Problems," Econometrica, Econometric Society, vol. 50(4), pages 975-85, July.
  5. Raut, L K & Srinivasan, T N, 1994. "Dynamics of Endogenous Growth," Economic Theory, Springer, vol. 4(5), pages 777-90, August.
  6. David N. Weil & Oded Galor, 1999. "From Malthusian Stagnation to Modern Growth," American Economic Review, American Economic Association, vol. 89(2), pages 150-154, May.
  7. Harford, Jon D, 1998. "The Ultimate Externality," American Economic Review, American Economic Association, vol. 88(1), pages 260-65, March.
  8. Rüdiger Pethig, 2005. "Nonlinear Production, Abatement, Pollution and Materials Balance Reconsidered," CESifo Working Paper Series 1549, CESifo Group Munich.
  9. Till Requate & Mark B. Cronshaw, 1997. "Population size and environmental quality," Journal of Population Economics, Springer, vol. 10(3), pages 299-316.
  10. Harford, Jon D., 1997. "Stock Pollution, Child-Bearing Externalities, and the Social Discount Rate," Journal of Environmental Economics and Management, Elsevier, vol. 33(1), pages 94-105, May.
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