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Polluting non-renewable resources, innovation and growth: welfare and environmental policy

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  • Grimaud, Andre
  • Rouge, Luc

Abstract

We analyze the impact of the pollution generated by the use of non-renewable resources on the standard results of growth models. In this context, we obtain a Hotelling rule which is not a pure efficiency condition any longer. Subsequently, we show that some of the optimal paths' standard properties change: in particular, an increase in the households' psychological discount rate leads to a slower extraction of the resource. Moreover, we present a simple endogenous growth model that allows us to study the effects of an environmental policy aimed at correcting the distortion introduced at the equilibrium. We show that the tax level does not matter, and that a decreasing tax on the resource use yields the optimum.
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  • Grimaud, Andre & Rouge, Luc, 2005. "Polluting non-renewable resources, innovation and growth: welfare and environmental policy," Resource and Energy Economics, Elsevier, vol. 27(2), pages 109-129, June.
    • Handle: RePEc:eee:resene:v:27:y:2005:i:2:p:109-129
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    References listed on IDEAS

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    1. Joseph E. Stiglitz, 1974. "Growth with Exhaustible Natural Resources: The Competitive Economy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(5), pages 139-152.
    2. Grimaud, Andre & Rouge, Luc, 2003. "Non-renewable resources and growth with vertical innovations: optimum, equilibrium and economic policies," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 433-453, March.
    3. Garg, Prem C. & Sweeney, James L., 1978. "Optimal growth with depletable resources," Resources and Energy, Elsevier, vol. 1(1), pages 43-56, September.
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    7. Poul Schou, 2000. "Polluting Non-Renewable Resources and Growth," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 16(2), pages 211-227, June.
    8. Christian Scholz & Georg Ziemes, 1999. "Exhaustible Resources, Monopolistic Competition, and Endogenous Growth," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 13(2), pages 169-185, March.
    9. Harold Hotelling, 1931. "The Economics of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 39(2), pages 137-137.
    10. Poul Schou, 2002. "When Environmental Policy is Superfluous: Growth and Polluting Resources," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(4), pages 605-620, December.
    11. K. J. Arrow, 1971. "The Economic Implications of Learning by Doing," Palgrave Macmillan Books, in: F. H. Hahn (ed.), Readings in the Theory of Growth, chapter 11, pages 131-149, Palgrave Macmillan.
    12. 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.
    13. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    14. Olli Tahvonen, 1997. "Fossil Fuels, Stock Externalities, and Backstop Technology," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 855-874, November.
    15. Kolstad, Charles D. & Krautkraemer, Jeffrey A., 1993. "Natural resource use and the environment," Handbook of Natural Resource and Energy Economics, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 3, chapter 26, pages 1219-1265, Elsevier.
    16. Tahvonen, Olli & Salo, Seppo, 2001. "Economic growth and transitions between renewable and nonrenewable energy resources," European Economic Review, Elsevier, vol. 45(8), pages 1379-1398, August.
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    More about this item

    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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