Optimal growth when environmental quality is a research asset

Francesco Ricci and Christian Groth
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Christian Groth: EPRU - Economic Policy Research Unit [Copenhagen] - Department of Economics [Copenhagen] - Faculty of Social Sciences [Copenhagen] - UCPH - University of Copenhagen = Københavns Universitet

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Abstract: We advance an original assumption whereby a good state of the environment positively affects labor productivity in R&D such that deteriorating environmental quality negatively impacts R&D. We study the implications of this assumption for the optimal solution in an R&D-based model of growth, where the use of a non-renewable resource generates pollution. We show that in such a case, it is socially optimal to postpone extraction, as opposed to the situation in which the environment has no effect on productivity in R&D. Furthermore, insofar as environmental quality declines and subsequently recovers, we find that it is optimal to re-allocate employment to R&D in line with productivity changes. If environmental quality recovers only partially from pollution, R&D effort optimally begins above its long-run level, then progressively declines to a minimum and eventually increases to its steady-state level.

Date: 2011
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Published in Research in Economics, 2011, 65 (4), pp.340-352. ⟨10.1016/j.rie.2011.01.005⟩

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Journal Article: Optimal growth when environmental quality is a research asset (2011)
Working Paper: Optimal growth when environmental quality is a research asset (2010)
Working Paper: Optimal growth when environmental quality is a research asset (2010)
Working Paper: Optimal growth when environmental quality is a research asset (2009)
Working Paper: Optimal Growth when Environmental Quality is a Research Asset (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03062224

DOI: 10.1016/j.rie.2011.01.005

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