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Implementing steady state efficiency in overlapping generations economies with environmental externalities

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  • DAO, Nguyen Thang

    () (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium; Vietnam Centre for Economic and Policy Research (VEPR), Hanoi, Vietnam)

  • DAVILA, Julio

    () (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium; Paris School of Economics, France)

Abstract

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 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 maintainance 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.

Suggested Citation

  • DAO, Nguyen Thang & DAVILA, Julio, 2011. "Implementing steady state efficiency in overlapping generations economies with environmental externalities," CORE Discussion Papers 2011031, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2011031
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    File URL: http://uclouvain.be/cps/ucl/doc/core/documents/coredp2011_31web.pdf
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    References listed on IDEAS

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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. Pautrel, Xavier, 2009. "Pollution and life expectancy: How environmental policy can promote growth," Ecological Economics, Elsevier, vol. 68(4), pages 1040-1051, February.
    4. Jouvet, Pierre-Andre & Michel, Philippe & Vidal, Jean-Pierre, 2000. " Intergenerational Altruism and the Environment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(1), pages 135-150, March.
    5. 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.
    6. 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.
    7. Marini Giancarlo & Scaramozzino Pasquale, 1995. "Overlapping Generations and Environmental Control," Journal of Environmental Economics and Management, Elsevier, vol. 29(1), pages 64-77, July.
    8. 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.
    9. Ono, Tetsuo, 1996. "Optimal tax schemes and the environmental externality," Economics Letters, Elsevier, vol. 53(3), pages 283-289, December.
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    Citations

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    Cited by:

    1. Torben M. Andersen & Joydeep Bhattacharya & Pan Liu, 2016. "Resolving Intergenerational Conflict over the Environment under the Pareto Criterion," CESifo Working Paper Series 6053, CESifo Group Munich.

    More about this item

    Keywords

    overlapping generations; environmental externality; tax and transfer policy;

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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