Indeterminacy and Pollution Haven Hypothesis in a Dynamic General Equilibrium Model

Akihiko Yanase ()

Open Economies Review, 2014, vol. 25, issue 5, 959-980

Abstract: This paper develops a two-sector dynamic general equilibrium model of a small open economy in which production activities are accompanied by pollution emissions that have a negative effect on welfare. It is shown that the dynamic equilibrium may display indeterminacy (i.e., continuum of dynamic equilibrium paths converging to a common steady state), depending on (i) the relationship between capital intensity and pollution intensity, (ii) the property of households’ discount rate as a function of total pollution, and (iii) the pollution-consumption relationship in instantaneous utility. In addition, the effect of environmental policy on the economy’s comparative advantage and its relation to indeterminacy are examined. Copyright Springer Science+Business Media New York 2014

Keywords: Dynamic general equilibrium model; Indeterminacy; Small open economy; Pollution haven hypothesis; F18; F43; O41 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s11079-014-9316-x

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