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Does Technical Progress Increase Long-Run Welfare?


  • Stefano Bartolini


  • Luigi Bonatti



We study an economy where households invest in capital and cause negative externalities on a renewable resource entering their utility function. There are also endogenous technical progress boosting labor productivity and the possibility of investing in resource-saving technical progress. Within this setup, we compare two regimes. Under “laissez-faire”, households ignore the externalities they cause: the resource is asymptotically depleted and perpetual economic growth is generated, but households’ welfare remains stagnant in the long run. Under an authority imposing the internalization of the externalities, long-run growth tends to be depressed but the resource is preserved and households’ welfare increases forever.

Suggested Citation

  • Stefano Bartolini & Luigi Bonatti, 2004. "Does Technical Progress Increase Long-Run Welfare?," Department of Economics University of Siena 435, Department of Economics, University of Siena.
  • Handle: RePEc:usi:wpaper:435

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    References listed on IDEAS

    1. de Bruyn, S. M. & van den Bergh, J. C. J. M. & Opschoor, J. B., 1998. "Economic growth and emissions: reconsidering the empirical basis of environmental Kuznets curves," Ecological Economics, Elsevier, vol. 25(2), pages 161-175, May.
    2. Oswald, Andrew J, 1997. "Happiness and Economic Performance," Economic Journal, Royal Economic Society, vol. 107(445), pages 1815-1831, November.
    3. Emmanuel M. Drandakis & Edmond S. Phelps, 1965. "A Model of Induced Invention, Growth and Distribution," Cowles Foundation Discussion Papers 186, Cowles Foundation for Research in Economics, Yale University.
    4. Kaufmann, Robert K. & Cleveland, Cutler J., 1995. "Measuring sustainability: needed--an interdisciplinary approach to an interdisciplinary concept," Ecological Economics, Elsevier, vol. 15(2), pages 109-112, November.
    5. Bartolini, Stefano & Bonatti, Luigi, 2002. "Environmental and social degradation as the engine of economic growth," Ecological Economics, Elsevier, vol. 43(1), pages 1-16, November.
    6. Daron Acemoglu, 2002. "Directed Technical Change," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 781-809.
    7. Daron Acemoglu, 2003. "Labor- And Capital-Augmenting Technical Change," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 1-37, March.
    8. Ayres, Robert U., 1995. "Economic growth: politically necessary but not environmentally friendly," Ecological Economics, Elsevier, vol. 15(2), pages 97-99, November.
    9. Toman, Michael & Simpson, R. David & Ayres, Robert, 2004. "Scarcity and Growth in the New Millennium: Summary," Discussion Papers dp-04-01, Resources For the Future.
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    More about this item


    Endogenous growth; Induced technical progress; Market failures; Externalities;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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