Pollution Externalities in a Schumpeterian Growth Model

39 Pages Posted: 10 Sep 2010

See all articles by Simon Koesler

Simon Koesler

ZEW – Leibniz Centre for European Economic Research - Environmental and Resource Economics, Environmental Management Research

Date Written: 2010

Abstract

This paper extends a standard Schumpeterian growth model to include an environmental dimension. Thereby, it explicitly links the pollution intensity of economic activity to technological progress. In a second step, it investigates the effect of pollution on economic growth under the assumption that pollution intensities are related to technological progress. Several conclusions emerge from the model. In equilibrium, the economy follows a balanced growth path. The effect of pollution on the economic growth rate vitally depends on the households' degree of pollution aversion and on the link between pollution intensity and the technology level. The decentralized solution does not meet the social optimum, though the social optimum can be implemented through the introduction of subsidies and pollution permits. Expectedly, the introduction of a pollution threshold stalls growth if pollution is not decoupled from economic growth and the possibility of pollution abatement allows the economy to grow at a higher rate.

Keywords: economic growth, endogenous pollution intensity, Schumpeter

JEL Classification: O41, Q51, Q55, Q56

Suggested Citation

Koesler, Simon, Pollution Externalities in a Schumpeterian Growth Model (2010). ZEW - Centre for European Economic Research Discussion Paper No. 10-055, Available at SSRN: https://ssrn.com/abstract=1674446 or http://dx.doi.org/10.2139/ssrn.1674446

Simon Koesler (Contact Author)

ZEW – Leibniz Centre for European Economic Research - Environmental and Resource Economics, Environmental Management Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim
Germany

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