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Optimal dynamic scale and structure of a multi-pollution economy

  • Stefan Baumgärtner

    ()

    (Centre of Sustainable Management, Leuphana University of Lüneburg)

  • Frank Jöst

    (Alfred-Weber-Institute of Economics, Universtity of Heidelberg)

  • Ralph Winkler

    (Center of Economic Research,ETH Swiss Federal Institute of Technology)

We analyze the optimal dynamic scale and structure of a two-sector-economy, where each sector produces one consumption good and ons specific pollutant. Both pollutants accumulate at different rates to stocks which damage the natural environment. This acts as a dynamic driving force for the economy. Our analysis shows that along the optimal time-path (i) the overall scale of economic acticity may be less than maximal; (ii) the time sclae economic dynamics (change of scale and structure) is mainly determined by the lifetime of pollutNTS, their harmfulness and the discount rate; and (iii) the optimal control of economic scale and structure may be non-monotonic. These results raise important questions about the optimal design of environmental policies.

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Paper provided by University of Lüneburg, Institute of Economics in its series Working Paper Series in Economics with number 50.

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Length: 40 pages
Date of creation: May 2007
Date of revision:
Handle: RePEc:lue:wpaper:50
Contact details of provider: Web page: http://leuphana.de/institute/ivwl.html

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