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Optimal Health and Environmental Policies in a Pollution-Growth Nexus

  • Wang, Min
  • Zhao, Jinhua
  • Bhattacharya, Joydeep

This paper shows how policies aimed at insuring health risks and those intended to improve the environment are (and should be) deeply intertwined. In the model economy, inspired by recent Chinese experience, pollution raises the likelihood of poor health in the future prompting agents to self insure against anticipated, rising medical expenses. The increased saving generates more capital while capital use by firms generates more pollution. Along the transition, sucha pollution-growth nexus may be attractive from a capital-accumulation perspective; however, rising pollution, via the health channel, definitely hurts welfare. Availability of private health insurance to top up pay-as-you-go coverage of medical bills together with a Pigouvian tax on emissions can replicate the first best.

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File URL: http://www2.econ.iastate.edu/papers/p15994-2013-03-08.pdf
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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 35994.

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Date of creation: 08 Mar 2013
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Publication status: Forthcoming in Journal of Environmental Economics and Management
Handle: RePEc:isu:genres:35994
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Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070

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