Transitional Dynamics to Optimal Sustainable Growth

Ignazio Musu

No 1282, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper presents a simple model of optimal sustainable growth when the environmental stock enters the consumers' utility function and production depends on produced capital and on a flow of environmental services. Endogenous growth is obtained by making the productivity growth of the environmental services dependent on past capital accumulation. Both the effect of environmental preservation on the consumers' utility function and the effect of past capital accumulation on the productivity of environmental services are seen as externalities, which are internalized along an optimal growth path. Optimal growth is sustainable when the use of the environmental asset for production is equal to the regeneration capacity of the environment. The paper describes the features of the optimal sustainable balanced growth path: it is shown that the form of the utility function is crucial in obtaining it. The transitional dynamics to the balanced path are discussed showing that, under not unreasonable assumptions concerning the structure of preferences, the path leading to sustainable balanced growth may either be completely unstable or exhibit indeterminacy. This creates problems in defining an appropriate environmental policy, which is shown to require a combination of emission taxes and a subsidy to capital accumulation.

Keywords: Endogenous Growth; Environmental Economics (search for similar items in EconPapers)
Date: 1996-02
References: Add references at CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=1282 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:1282

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=1282

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().