Sustainable development with stock pollution

Werner Hediger

Environment and Development Economics, 2009, vol. 14, issue 6, 759-780

Abstract: Optimal pollution control is an important challenge for sustainable development with three distinct cases. First, the situation where nature's assimilative capacity is completely destroyed involves normative problems that require further research. Second, environmental restoration with initial pollution above the steady-state stock requires an economy to initially allocate a relatively high share of its resources to cleaning-up activities. In return, this generally results in an intertemporally efficient development path that is both environmentally and economically sustainable. Third, optimal trajectories in situations with initial stocks of pollution below the long-term optimum generally imply an increase in pollution and a decline of optimal consumption. In this case, the investment of the environmental rents accruing from nature's assimilative capacity into man-made capital is required in analogy to the famous Hartwick rule to maintain a constant flow of instantaneous welfare. This would facilitate growth in consumption sufficient to compensate for the rising disutility of pollution.

Date: 2009
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