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Environmental Economics and Policy Studies

, Volume 2, Issue 3, pp 167–185 | Cite as

Growth or environmental concern: which comes first? Optimal control with pure stock pollutants

  • Kjell Holmåker
  • Thomas Sterner
Article
  • 41 Downloads

Abstract

This paper models an economy with a stock pollution problem that must choose between productive and environmental investments. Both increase consumption, but only the former leads to economic growth. An optimal control model is solved giving four different paths depending on the initial parameters. For small values of pollution maximizing economic growth is optimal; and for massive pollution all investments are dedicated to environmental abatement. Similarly, the role of discount and savings rates, the relative profitability of abatement and productive investments, and the length of the time horizon are analyzed. Optimal control models simple enough to solve analytically often give intuitively unsatisfactory, boundary-type solutions. Our model, however, does have a large domain of parameter values for which “interior” solutions are optimal. These may start with a period of exclusive productive or environmental investments and then switch over to a mix of investments that corresponds to real-life expectations.

Key words

Growth Stock pollutant Environmental investments Optimal control Application of the Pontryagin maximum principle 

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Copyright information

© Springer Japan 1999

Authors and Affiliations

  • Kjell Holmåker
    • 1
  • Thomas Sterner
    • 2
    • 3
  1. 1.Department of MathematicsChalmers University of Technology and the University of GöteborgGöteborgSweden
  2. 2.Department of EconomicsThe University of GöteborgGöteborgSweden
  3. 3.Resources for the FutureWashington, DCUSA

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