Skip to main content
SpringerLink
Log in

The trade-off between environmental care and long-term growth—Pollution in three prototype growth models

  • Articles
  • Published:
Journal of Economics Aims and scope Submit manuscript

Abstract

The effects of increased environmental care on optimal technology choice and long-term growth are studied for an economy in which pollution is a side-product of physical capital used in production. First, it is shown that in case of a standard neoclassical production structure, the result is a less capital-intensive production process whereas the long-run growth rate is not affected. Next, we introduce assumptions of the endogenous growth literature. When there are constant returns to physical capital, an increase in abatement activities crowds out investment and lowers the endogenous growth rate. When human capital accumulation is the engine of growth, physical capital intensity declines and the endogenous optimal growth rate is unaffected by increased environmental care or is even higher, depending on whether or not pollution influences agents' ability to learn.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Benhabib, J., and Radner, R. (1989): “Joint Exploitation of a Productive Asset: a Game-Theoretic Approach.” Mimeo, New York University.

  • Dasgupta, P. (1982):The Control of Resources. Oxford: Basil Blackwell.

    Google Scholar 

  • Forster, B. A. (1973): “Optimal Capital Accumulation in a Polluted Environment.”Southern Economic Journal 39: 544–547.

    Google Scholar 

  • Gradus, R. H. J. M., and Kort, P. M. (1992): “Optimal Taxation on Profit and Pollution within a Macroeconomic Framework.” InDynamic Economic Models and Optimal Control, edited by G. Feichtinger. Amsterdam: North-Holland.

    Google Scholar 

  • Grossman, G. M., and Helpman, E. (1991):Innovation and Growth in the Global Economy. Cambridge, MA: MIT Press.

    Google Scholar 

  • Gruver, G. (1976): “Optimal Investment and Pollution Control in a Neoclassical Growth Context.”Journal of Environmental Economics and Management 5: 165–177.

    Google Scholar 

  • Kaitala, V., Pohjola, M., and Tahvonen, O. (1991): “Transboundary Air Pollution between Finland and the USSR: a Dynamic Acid Rain Game.” InDynamic Games in Economic Analysis, edited by R. Hämäläinen and H. Ethamo. Berlin Heidelberg New York Tokyo: Springer.

    Google Scholar 

  • Lucas, R. E. (1988): “On the Mechanics of Economic Development.”Journal of Monetary Economics 22: 3–42.

    Google Scholar 

  • Luptacik, M., and Schubert, U. (1982):Optimal Economic Growth and the Environment, Economic Theory of Natural Resources. Vienna: Physica.

    Google Scholar 

  • Mäler, K.-G. (1975): “Macroeconomic Aspects of Environmental Policy.” InEconomic Analysis of Environmental Problems, edited by E. S. Mills. New York: Columbia University Press.

    Google Scholar 

  • Margulis, S. (1991): “A Guide to Back of the Envelope Estimates of Environmental Damage Costs: An Application to Mexico.” Mimeo, World Bank.

  • Rebelo, S. (1991): “Long-run Policy Analysis and Long-run Growth.”Journal of Political Economy 99: 500–521.

    Google Scholar 

  • Romer, P. M. (1986): “Increasing Returns and Long-run Growth.”Journal of Political Economy 94: 1002–1037.

    Google Scholar 

  • — (1990): “Endogenous Technological Change.”Journal of Political Economy 98: S71-S102.

    Google Scholar 

  • Siebert, H. (1987):Economics of the Environment. Berlin Heidelberg New York Tokyo: Springer.

    Google Scholar 

  • Van de Klundert, T., and Smulders, S. (1992): “Reconstructing Growth Theory: a Survey.”De Economist 140: 177–203.

    Google Scholar 

  • Van der Ploeg, F., and De Zeeuw, A. J. (1992): “International Aspects of Pollution Control.”Environmental and Resource Economics 2: 117–139.

    Google Scholar 

  • Van der Ploeg, F., and Withagen, C. (1991): “Pollution Control and the Ramsey Problem.”Environmental and Resource Economics 1: 215–230.

    Google Scholar 

Download references

Author information

Author notes

  1. Raymond Gradus

    Present address: Ministry of Finance, P. O. Box 20201, NL-2500 EE, The Hague, The Netherlands

  2. Sjak Smulders

    Present address: Faculty of Economics, Tilburg University, P. O. Box 90153, NL-5000 LE, Tilburg, The Netherlands

Authors and Affiliations

    Authors
    1. Raymond Gradus
      View author publications

      You can also search for this author in PubMed Google Scholar

    2. Sjak Smulders
      View author publications

      You can also search for this author in PubMed Google Scholar

    Additional information

    The authors are grateful to an anonymous referee, to Lans Bovenberg, Noud Gruijters, Theo van de Klundert, Lex Meijdam, and Sweder van Wijnbergen for helpful and stimulating comments. The views expressed in this paper are the authors' own and should not be attributed to the Ministry of Finance.

    Rights and permissions

    Reprints and permissions

    About this article

    Cite this article

    Gradus, R., Smulders, S. The trade-off between environmental care and long-term growth—Pollution in three prototype growth models. Journal of Economics Zeitschrift für Nationalökonomie 58, 25–51 (1993). https://doi.org/10.1007/BF01234800

    Download citation

    • Received:

    • Revised:

    • Issue Date:

    • DOI: https://doi.org/10.1007/BF01234800

    Keywords

    Search

    Navigation