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Pollution, mortality and optimal environmental policy

Author

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  • Goenka, A.
  • Jafarey, S.
  • Pouliot, W.

Abstract

We study an overlapping generations economy in which environmental degradation results from economic activity and affects agents' uncertain lifetimes. Life expectancy depends positively on economic activity and negatively on the stock of pollution. This can make the growth-survival relationship convex over some region and lead to two non-trivial steady states, with one a poverty trap. Uniform abatement taxes can cause the poverty trap to widen while increasing incomes at the high steady state. We also study the properties and dynamics of an optimal second-best abatement tax. It is non-homogeneous and increasing in the capital stock, and leads to a variety of dynamic possibilities, including non-existence and multiplicity of steady states, and cycles around some of the steady states, where there were none under exogenous taxes. Thus, optimal taxes can be an independent source of non-linearities.

Suggested Citation

  • Goenka, A. & Jafarey, S. & Pouliot, W., 2012. "Pollution, mortality and optimal environmental policy," Working Papers 12/07, Department of Economics, City University London.
  • Handle: RePEc:cty:dpaper:12/07
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    References listed on IDEAS

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    1. Georgios Georgiadis & José Pineda & Francisco Rodríguez, 2010. "Has the Preston Curve Broken Down?," Human Development Research Papers (2009 to present) HDRP-2010-32, Human Development Report Office (HDRO), United Nations Development Programme (UNDP).
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    3. Pautrel, Xavier, 2009. "Pollution and life expectancy: How environmental policy can promote growth," Ecological Economics, Elsevier, vol. 68(4), pages 1040-1051, February.
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    6. Evans, Mary F. & Smith, V. Kerry, 2005. "Do new health conditions support mortality-air pollution effects?," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 496-518, November.
    7. Théophile T. Azomahou & Raouf Boucekkine & Bity Diene, 2009. "A closer look at the relationship between life expectancy and economic growth," International Journal of Economic Theory, The International Society for Economic Theory, vol. 5(2), pages 201-244.
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    10. Koop, Gary & Tole, Lise, 2004. "Measuring the health effects of air pollution: to what extent can we really say that people are dying from bad air?," Journal of Environmental Economics and Management, Elsevier, vol. 47(1), pages 30-54, January.
    11. Dimitrios Varvarigos, 2010. "On the Joint Dynamics of Pollution and Capital Accumulation," Discussion Papers in Economics 11/05, Department of Economics, University of Leicester.
    12. Roger D. Peng & Francesca Dominici & Thomas A. Louis, 2006. "Model choice in time series studies of air pollution and mortality," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 169(2), pages 179-203.
    13. Xavier Pautrel, 2012. "Pollution, Private Investment in Healthcare, and Environmental Policy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(2), pages 334-357, June.
    14. Palivos, Theodore & Varvarigos, Dimitrios, 2017. "Pollution Abatement As A Source Of Stabilization And Long-Run Growth," Macroeconomic Dynamics, Cambridge University Press, vol. 21(03), pages 644-676, April.
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    Cited by:

    1. Wang, Min & Zhao, Jinhua & Bhattacharya, Joydeep, 2015. "Optimal health and environmental policies in a pollution-growth nexus," Journal of Environmental Economics and Management, Elsevier, vol. 71(C), pages 160-179.
    2. Nguyen Than Dao & Ottmar Edenhofer, 2014. "On the Fiscal Strategies of Escaping Poverty-Environment Traps (and) Towards Sustainable Growth," CESifo Working Paper Series 4865, CESifo Group Munich.
    3. repec:kap:enreec:v:68:y:2017:i:3:d:10.1007_s10640-016-0041-3 is not listed on IDEAS
    4. 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.
    5. Lucas Bretschger & Alexandra Vinogradova, 2017. "Human Development at Risk: Economic Growth with Pollution-Induced Health Shocks," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 66(3), pages 481-495, March.

    More about this item

    Keywords

    Overlapping generations model; poverty traps; non-convexities; multiple steady states; pollution; optimal environmental policy; optimal abatement tax;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth

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