Adriaan van Zon

Health and endogenous growth

The focus of endogenous growth theory on human capital formation and the physical embodiment of knowledge in people, suggests the integration of the growth supporting character of health production and the growth generating services of human capital accumulation in an endogenous growth framework. We show that a slow down in growth may be explained by a preference for health that is positively influenced by a growing income per head, or by an ageing population. Growth may virtually disappear for countries with high rates of decay of health, low productivity of the health-sector, or high rates of discount.

An endogenous growth model with embodied energy-saving technical change

In this short paper we add a non-renewable resource sector to van Zon and Yetkiner (2003) that extended Romer (1990) by including energy consumption of intermediate goods in a context of endogenous and embodied technical change. Van Zon and Yetkiner (2003) showed that the growth rate depends negatively on the growth of exogenous real energy prices. In this paper, we endogenise the growth rate of real energy prices by introducing a non-renewable resource sector into the model. This allows us to study the comparative statics of the model. We show that changes in technology parameters promote growth, while others disfavour growth.

Risk, embodied technical change and irreversible investment decisions in UK electricity production: An optimum technology portfolio approach

UK climate change policy has long been concerned with the transition to a more sustainable energy mix, both environmentally and in terms of energy security. Electricity producers have to handle the uncertainties surrounding investment decisions for new capacity. This chapter focuses on two sources: the volatility of fuel prices and uncertainty concerning technological progress itself in a context of embodied technical change and irreversible investment. Technological uncertainty in combination with high capital costs per MW of installed capacity is likely to deter investors from irreversibly committing resources to the adoption of renewable technologies on a larger scale, even though they have to accept a higher degree of fuel price risk by doing so. Using the extended model, several characteristics of present UK policy are implemented to illustrate the principles involved. The reduction of risk is accompanied by an increase in total costs. For increasing risk aversion, investors are willing to adopt nuclear energy relatively early. Moreover, the embodiment of technical change, in combination with the expectation of a future switch toward another technology, can reduce current investment in that technology. This enables rational but risk-averse investors to maximize productivity gains by waiting for ongoing technical change to materialize until they plan to switch and subsequently invest more heavily in the most recent vintages.

Random walks and non-linear paths in macroeconomic time series: some evidence and implications

This paper investigates whether the inherent non-stationarity of macroeconomic time series is entirely due to a random walk or also to non-linear components. Applying the numerical tools of the analysis of dynamical systems to long time series for the US, we reject the hypothesis that these series are generated solely by a linear stochastic process. Contrary to the Real Business Cycle theory that attributes the irregular behavior of the system to exogenous random factors, we maintain that the fluctuations in the time series we examined cannot be explained only by means of external shocks plugged into linear autoregressive models. A dynamical and non-linear explanation may be useful for the double aim of describing and forecasting more accurately the evolution of the system. Linear growth models that find empirical verification on linear econometric analysis, are therefore seriously called in question. Conversely non-linear dynamical models may enable us to achieve a more complete information about economic phenomena from the same data sets used in the empirical analysis which are in support of Real Business Cycle Theory. We conclude that Real Business Cycle theory and more in general the unit root autoregressive models are an inadequate device for a satisfactory understanding of economic time series. A theoretical approach grounded on non-linear metric methods, may however allow to identify non-linear structures that endogenously generate fluctuations in macroeconomic time series.

General Purpose Technologies and Energy Policy

We employ a general purpose technology model with endogenous stochastic growth to simulate the effects of different energy policy schemes. An R&D sector produces endogenous growth by developing radical and incremental technologies. These innovations result in blueprints for capital intermediates, which require raw capital and either carbon or non-carbon-based fuels. A carbon tax therefore affects not only the final production sector but also the R&D sector by making the development of non-carbon-based technologies more attractive. Due to path dependencies and possible lock-in situations, policy can have a significant long-term impact on the energy structure of the economy. Allowing for different elasticities of substitution between consumption and environmental quality, we examine the effects of different carbon policies on growth, environmental quality, and welfare. We find that an anti-carbon policy may reduce welfare initially, but in the long run there is a strong potential for a ‘double dividend’ due to faster growth and reduced pollution.

Connectivity And Economic Growth

We present a simple theoretical model that illustrates the benefits of regional connectivity and specialization for growth. Starting with one community, we show how welfare measured by utility per head increases as the number of connected communities increases. We assume a common connectivity infrastructure through which a central planner is able to add new communities to the pool of already connected communities, a costly but rewarding activity that is funded by levying a tax on those already connected. We find that increasing production costs lead to faster transitions toward the steady state, whereas increasing transportation and communication costs tend to lengthen the transition. The results point to reductions in transportation and communication costs, in particular, as a suitable vehicle for speeding up growth and underline the existence of a positive scale effect that induces integration and reinforces both transitional and steady state growth.

Skill Biases in Employment Opportunities and Income Perspectives

The rigidities inherent in the stable wage development in Europe hamper the Schumpeterian process of creative destruction and therefore are a barrier to productivity growth. This notion, amongst others, motivated the deregulation programme in Europe. However, in the discussion on this programme and in its far-reaching policy implications, a crucial public good aspect of technological change has been ignored. Recognition of this aspect and the market failures it invokes, together with concern about the income inequality implied by forceful deregulation of the labour market, inspired us to the current analysis. We show that well-targeted wage subsidies are welfare improving.