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Optimal Growth with Resource Exhaustibility and Pollution Externality

Author

Listed:
  • Wei Jin

    (School of Economics, UNSW Business School, UNSW)

  • Alan Woodland

    (School of Economics, UNSW Business School, UNSW)

Abstract

This paper investigates a problem of optimal growth with resource exhaustibility and pollution externality, based on a unified framework that explicitly considers augmentable man-made capital, exhaustible resource reserves, and accumulative environmental pollutants as three stock variables for optimal control analysis. Characterizations of the social optimum show that for any given man-made capital and resource reserves, resource extraction flows generated in optimal growth with both resource exhaustibility and pollution externality are smaller than those with only resource exhaustibility, and taking account of pollution externality resulting from resource extraction reduces the growth rate of consumption if man-made capital and natural resources are complements in final goods production. Existence, uniqueness and comparative statics of the steady state are analyzed. Conditions for transitional dynamics stability of optimal growth with resource exhaustibility and pollution externality are established. Expositions are made on whether allocations in a market equilibrium are consistent with the social optimum outcomes.

Suggested Citation

  • Wei Jin & Alan Woodland, 2017. "Optimal Growth with Resource Exhaustibility and Pollution Externality," Discussion Papers 2017-09, School of Economics, The University of New South Wales.
    • Handle: RePEc:swe:wpaper:2017-09
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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2017-09.pdf
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    More about this item

    Keywords

    Sustainability; Economic Growth; Exhaustible Resources; Pollution Externality; Environmental Damage; Optimal Control Problems.;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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