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Sustainable growth under pollution quotas: optimal R&D, investment and replacement policies

  • Raouf Boucekkine

    ()

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579)

  • Natali Hritonenko

    ()

    (Prairie View - A&M University)

  • Yuri Yatsenko

    ()

    (Houston Baptist University - Houston Baptist University)

We consider an optimal growth model of an economy facing an exogenous pollution quota. In the absence of an international market of pollution permits, the economy has three instruments to reach sustainable growth: R&D to develop cleaner technologies, investment in new clean capital goods, and scrapping of the old dirty capital. The R&D technology depends negatively on a complexity component and positively on investment in this sector at constant elasticity. First, we characterize possible balanced growth paths for different parameterizations of the R&D technology. It is shown that countries with an under-performing R&D sector would need an increasing pollution quota over time to ensure balanced growth while countries with a highly efficient R&D sector would supply part of their assigned pollution permits in an international market without harming their long-term growth. Second, we study transitional dynamics to balanced growth. We prove that regardless of how large the regulation quota is, the transition dynamics leads to the balanced growth with binding quota in a finite time. In particular, we discover two optimal transition regimes: an intensive growth (sustained investment in new capital and R&D with scrapping the oldest capital goods), and an extensive growth (sustained investment in new capital and R&D without scrapping the oldest capital).

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Paper provided by HAL in its series Working Papers with number halshs-00632887.

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Date of creation: 17 Oct 2011
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Handle: RePEc:hal:wpaper:halshs-00632887
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  1. Selden Thomas M. & Song Daqing, 1995. "Neoclassical Growth, the J Curve for Abatement, and the Inverted U Curve for Pollution," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 162-168, September.
  2. Krysiak, Frank C., 2011. "Environmental regulation, technological diversity, and the dynamics of technological change," Journal of Economic Dynamics and Control, Elsevier, vol. 35(4), pages 528-544, April.
  3. Boucekkine, Raouf & Hritonenko, Natali & Yatsenko, Yuri, 2011. "Scarcity, regulation and endogenous technical progress," Journal of Mathematical Economics, Elsevier, vol. 47(2), pages 186-199, March.
  4. Raouf Boucekkine & Jacek B. Krawczyk & Thomas Vallée, 2009. "Towards an understanding of tradeoffs between regional wealth, tightness of a common environmental constraint and the sharing rules," Working Papers hal-00422486, HAL.
  5. Boucekkine, Raouf, et al, 1998. " Creative Destruction, Investment Volatility, and the Average Age of Capital," Journal of Economic Growth, Springer, vol. 3(4), pages 361-84, December.
  6. Acemoglu, Daron & Aghion, Philippe & Bursztyn, Leonardo & Hemous, David, 2010. "The Environment and Directed Technical Change," Seminar Papers 762, Stockholm University, Institute for International Economic Studies.
  7. Daniel J. Wilson, 2002. "Is Embodied Technology the Result of Upstream R&D? Industry-Level Evidence," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 285-317, April.
  8. Frederick Ploeg & Cees Withagen, 1991. "Pollution control and the Ramsey problem," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 1(2), pages 215-236, June.
  9. Grimaud, Andre, 1999. "Pollution Permits and Sustainable Growth in a Schumpeterian Model," Journal of Environmental Economics and Management, Elsevier, vol. 38(3), pages 249-266, November.
  10. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
  11. Godal, Odd & Klaassen, Ger, 2006. "Carbon trading across sources and periods constrained by the Marrakesh Accords," Journal of Environmental Economics and Management, Elsevier, vol. 51(3), pages 308-322, May.
  12. Feichtinger, Gustav & Hartl, Richard F. & Kort, Peter M. & Veliov, Vladimir M., 2005. "Environmental policy, the porter hypothesis and the composition of capital: Effects of learning and technological progress," Journal of Environmental Economics and Management, Elsevier, vol. 50(2), pages 434-446, September.
  13. Bovenberg, A.L. & Smulders, J.A., 1995. "Environmental quality and pollution-augmenting technological change in a two-sector endogenous growth model," Other publications TiSEM 6784bb12-71fb-45a5-bf7e-8, Tilburg University, School of Economics and Management.
  14. Cees Withagen, 1995. "Pollution, abatement and balanced growth," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 5(1), pages 1-8, January.
  15. Boucekkine, R. & Germain, M. & Licandro, O., . "Replacement echoes in the vintage capital growth model," CORE Discussion Papers RP -1275, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  16. Pierre-André Jouvet & Philippe Michel & Gilles Rotillon, 2004. "Optimal growth with pollution : how to use pollution permits ?," Cahiers de la Maison des Sciences Economiques v04012, Université Panthéon-Sorbonne (Paris 1).
  17. Kort, P. & Hartl, R.F. & Veliov, V.M. & Feichtinger, G., 2005. "Capital accumulation under technological progress and learning : a vintage capital approach," Other publications TiSEM 52a6c1fe-8d4a-47bf-ada4-a, Tilburg University, School of Economics and Management.
  18. Bovenberg, A Lans & Smulders, Sjak A, 1996. "Transitional Impacts of Environmental Policy in an Endogenous Growth Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 861-93, November.
  19. repec:ner:tilbur:urn:nbn:nl:ui:12-170753 is not listed on IDEAS
  20. repec:ner:tilbur:urn:nbn:nl:ui:12-3107039 is not listed on IDEAS
  21. Hritonenko, Natali & Yatsenko, Yuri, 2010. "Technological innovations, economic renovation, and anticipation effects," Journal of Mathematical Economics, Elsevier, vol. 46(6), pages 1064-1078, November.
  22. YATSENKO, Yuri & BOUCEKKINE, Raouf & HRITONENKO, Natali, . "On explosive dynamics in R&D-based models of endogenous growth," CORE Discussion Papers RP -2205, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  23. repec:cor:louvrp:2205 is not listed on IDEAS
  24. repec:ner:tilbur:urn:nbn:nl:ui:12-73103 is not listed on IDEAS
  25. Hart, Rob, 2004. "Growth, environment and innovation--a model with production vintages and environmentally oriented research," Journal of Environmental Economics and Management, Elsevier, vol. 48(3), pages 1078-1098, November.
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