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Sustainable Growth in a Model with Dual-Rate Discounting

Kirill Borissov () and Kirill Shakhnov ()

No 2011/04, EUSP Department of Economics Working Paper Series from European University at St. Petersburg, Department of Economics

Abstract: In an important model of growth and pollution proposed by Stokey [Int. Econ. Rev. 39 (1998) 1] neither the rate of economic growth nor the rate of growth of emissions depends on the time preference of the representative agent, which seems somewhat paradoxical. To resolve this paradox, we introduce into Stokey's model the assumption of dual-rate discounting, prove the existence of a sustainable balanced growth optimal path, and show that the growth rates of output and emissions are increasing in the proportion between the consumption and the environmental discount factors of the representative agent.

Keywords: growth; pollution; discounting (search for similar items in EconPapers)
JEL-codes: C61 O44 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2011-03-07, Revised 2011-03-10
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Published in Economic Modelling 28 (2011) 2071-2074

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