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Optimal growth when environmental quality is a research asset

  • Groth, Christian
  • Ricci, Francesco

We advance an original assumption whereby a good state of the environment positively affects labor productivity in R&D such that deteriorating environmental quality negatively impacts R&D. We study the implications of this assumption for the optimal solution in an R&D-based model of growth, where the use of a non-renewable resource generates pollution. We show that in such a case, it is socially optimal to postpone extraction, as opposed to the situation in which the environment has no effect on productivity in R&D. Furthermore, insofar as environmental quality declines and subsequently recovers, we find that it is optimal to re-allocate employment to R&D in line with productivity changes. If environmental quality recovers only partially from pollution, R&D effort optimally begins above its long-run level, then progressively declines to a minimum and eventually increases to its steady-state level.

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Article provided by Elsevier in its journal Research in Economics.

Volume (Year): 65 (2011)
Issue (Month): 4 (December)
Pages: 340-352

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Handle: RePEc:eee:reecon:v:65:y:2011:i:4:p:340-352
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622941

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  1. Corrado Di Maria & Simone Valente, 2006. "The Direction of Technical Change in Capital-Resource Economies," CER-ETH Economics working paper series 06/50, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
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  18. Hippolyte D'Albis & Pascal Gourdel & Cuong Le Van, 2008. "Existence of Solutions in Continuous-time Optimal Growth Models," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00177269, HAL.
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