Endogenous Growth with a Ceiling on the Stock of Pollution

Abstract

The eects of an agreement such as the Kyoto Protocol, which implicitly imposes a ceiling on the stock of pollution, have recently been studied in Hotelling models. We add pollution and a ceiling to the endogenous growth model of Tsur and Zemel (2005) to study the eects of the ceiling on capital accumulation and research investments. The ceiling increases the scarcity of the exhaustible resource in the short run, which boosts backstop utilization.This implies that R&D becomes more benecial compared with capital accumulation.How the short run development path of an economy is aected depends on its capital endowment or richness, respectively. Only economies which are neither too rich nor too poor may invest more into research. In the long run an economy with a ceiling follows basically the same long run development path as an economy without the ceiling.

Endogenous growth with a limited fossil fuel extraction capacity

“…In contrast, we show that a capacity constraint can give rise to the phenomenon in an economy with a large but limited fossil fuel endowment. According to Kollenbach () and Kollenbach (), a pollution problem, represented by polluting fossil fuels and a ceiling on the stock of pollution (CO 2 ), give rise to similar results as stated in proposition 6. However, we abstract from environmental concerns, while a limited fossil fuel extraction capacity and the related specialized capital stock are not considered by Kollenbach () and Kollenbach ().…”

“…According to Kollenbach () and Kollenbach (), a pollution problem, represented by polluting fossil fuels and a ceiling on the stock of pollution (CO 2 ), give rise to similar results as stated in proposition 6. However, we abstract from environmental concerns, while a limited fossil fuel extraction capacity and the related specialized capital stock are not considered by Kollenbach () and Kollenbach (). In particular, there is no possibility to increase fossil fuel use in Kollenbach (), while the abatement expenditures of Kollenbach () do not accumulate in a specialized capital stock.…”

“…By following the procedure of Kollenbach () and Kollenbach (), we analyze economic development by illustrating seven exemplary ( K , A , Q )‐processes in figures and . Every illustrated process is in line with the results of the sections and .…”

“…However, we abstract from environmental concerns, while a limited fossil fuel extraction capacity and the related specialized capital stock are not considered by Kollenbach () and Kollenbach (). In particular, there is no possibility to increase fossil fuel use in Kollenbach (), while the abatement expenditures of Kollenbach () do not accumulate in a specialized capital stock. Therefore, the results of Kollenbach (), allow for both singular abatement expenditures and simultaneous abatement and research expenditures.…”

“…In particular, there is no possibility to increase fossil fuel use in Kollenbach (), while the abatement expenditures of Kollenbach () do not accumulate in a specialized capital stock. Therefore, the results of Kollenbach (), allow for both singular abatement expenditures and simultaneous abatement and research expenditures. In contrast, we rule out singular capacity and simultaneous capacity and research investments.…”