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Fight Fire with Fire: A Model of Pollution and Growth with Cooperative Settlement

Author

Listed:
  • Chia-Ying Chang

    (Department of Economics, Vanderbilt University)

  • Chien-Chieh Huang

    (Department of Economics, National Dong-Hwa University, Taiwan)

  • Ping Wang

    () (Department of Economics, Vanderbilt University)

Abstract

This paper establishes a growth model where firms and residents in polluted areas bargain cooperatively to settle environmental concerns. While economic development affects the extent of the negotiation outcomes, the bargaining results also influence firms' incentive to undertake R&D and thus economic growth. Due to the opposing effects of production and matching technologies, an inverted-U relationship between pollution and growth is obtained. Contrasting to growth-promoting policies, policies that create barriers to firm entry or matching may reduce pollution harming growth. Due to the opposing effects of thick-matching versus effective-discounting and pollution-externality, the decentralized outcome may involve over or under-pollution.

Suggested Citation

  • Chia-Ying Chang & Chien-Chieh Huang & Ping Wang, 2000. "Fight Fire with Fire: A Model of Pollution and Growth with Cooperative Settlement," Vanderbilt University Department of Economics Working Papers 0010, Vanderbilt University Department of Economics.
  • Handle: RePEc:van:wpaper:0010
    as

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    File URL: http://www.accessecon.com/pubs/VUECON/vu00-w10.pdf
    File Function: First version, 2000
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    References listed on IDEAS

    as
    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Eric O'N. Fisher & Charles van Marrewijk, 1998. "Pollution and economic growth," The Journal of International Trade & Economic Development, Taylor & Francis Journals, pages 55-69.
    3. Farzin, Y. H., 1996. "Optimal pricing of environmental and natural resource use with stock externalities," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 31-57, October.
    4. Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, vol. 72(5), pages 968-979, December.
    5. Laing, D. & Palivos, T. & Wang, P., 1995. "Vertical Innovation, Product Cycles and Endogenous Growth in Search Equilibrium," Papers 01-95-02, Pennsylvania State - Department of Economics.
    6. Shibata, Hirofumi, 1971. "A Bargaining Model of the Pure Theory of Public Expenditure," Journal of Political Economy, University of Chicago Press, vol. 79(1), pages 1-29, Jan.-Feb..
    7. John, A. & Pecchenino, R. & Schimmelpfennig, D. & Schreft, S., 1995. "Short-lived agents and the long-lived environment," Journal of Public Economics, Elsevier, vol. 58(1), pages 127-141, September.
    8. Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 217-227.
    9. Stokey, Nancy L, 1998. "Are There Limits to Growth?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 1-31, February.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Bargaining; endogenous growth; environmental externality;

    JEL classification:

    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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