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Optimal growth when environmental quality is a research asset

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  • Groth, Christian
  • Ricci, Francesco

Abstract

We advance an original assumption whereby a good state of the environment positively affects labor productivity in R&D such that deteriorating environmental quality negatively impacts R&D. We study the implications of this assumption for the optimal solution in an R&D-based model of growth, where the use of a non-renewable resource generates pollution. We show that in such a case, it is socially optimal to postpone extraction, as opposed to the situation in which the environment has no effect on productivity in R&D. Furthermore, insofar as environmental quality declines and subsequently recovers, we find that it is optimal to re-allocate employment to R&D in line with productivity changes. If environmental quality recovers only partially from pollution, R&D effort optimally begins above its long-run level, then progressively declines to a minimum and eventually increases to its steady-state level.
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  • Groth, Christian & Ricci, Francesco, 2010. "Optimal growth when environmental quality is a research asset," LERNA Working Papers 10.27.333, LERNA, University of Toulouse.
    • Handle: RePEc:ler:wpaper:10.27.333
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    Cited by:

    1. Maciej Malaczewski, 2018. "Natural Resources As An Energy Source In A Simple Economic Growth Model," Bulletin of Economic Research, Wiley Blackwell, vol. 70(4), pages 362-380, October.
    2. Peter K. Kruse-Andersen, 2016. "Directed Technical Change and Economic Growth Effects of Environmental Policy," Discussion Papers 16-06, University of Copenhagen. Department of Economics.
    3. Silvia Micheli & Carlo Andrea Bollino, 2011. "Sustainable growth with renewable and non-renewable energy sources," EcoMod2011 3213, EcoMod.

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