Luc Rouge

Non-renewable resources and growth with vertical innovations: optimum, equilibrium and economic policies☆

Abstract We consider a Schumpeterian model of endogenous growth with creative destruction in which we introduce a non-renewable natural resource. We characterize the optimum and the equilibrium paths, and we derive the precise levels of economic policy instruments that allow the implementation of the optimum. Moreover, we study the effects of these policies on the relevant steady-state variables, in particular the rate of extraction of the resource.

Polluting non-renewable resources, tradeable permits and endogenous growth

We set up an endogenous growth model with vertical innovations in which the use of a non-renewable resource within the production process generates a flow of pollution. This flow negatively affects the dynamics of the stock of environment, which is an argument of the non-separable utility function. We study the general equilibrium effects of an environmental policy consisting in emissions of tradeable permits. In particular, we show that a more stringent policy can lead, by the channel of the permits price dynamics, to more RD in all cases it promotes growth.

Environmental Policy Instruments and the Long-Run Management of a Growing Stock of Pollutant

Most environmental damage can be reduced through investments in the management of the pollutants that cause this damage. In the case of climate change, for instance, the harmful effects of the accumulated stock of greenhouse gases depend on the adaptation effort. Our aim is to analyze which economic policy schemes can restore the social optimum in such contexts. We consider a simple endogenous growth model with a polluting non-renewable resource and directed technical change, in which the environmental damage (and unique externality) depends on the accumulated stock of pollutant as well as on a stock of green knowledge dedicated to its management. Here, the socially optimal policy consists in a tax on the environmental damage, which provides the right incentives to (a) invest in green knowledge and (b) mitigate pollutant flows. More usual—and more easily implementable—environmental policies like taxes on pollution flows (e.g., carbon tax) cannot yield first-best outcomes in this context since they do not provide the right incentives to invest in the management of the emitted pollutants. We nevertheless show how coupling such a type of policy tool with a subsidy to green R&D can restore the social optimum.