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Growth or environmental concern: which comes first? Optimal control with pure stock pollutants

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  • Kjell Holmåker

    (Chalmers University of Technology and the University of Göteborg)

  • Thomas Sterner

    (The University of Göteborg
    Resources for the Future)

Abstract

This paper models an economy with a stock pollution problem that must choose between productive and environmental investments. Both increase consumption, but only the former leads to economic growth. An optimal control model is solved giving four different paths depending on the initial parameters. For small values of pollution maximizing economic growth is optimal; and for massive pollution all investments are dedicated to environmental abatement. Similarly, the role of discount and savings rates, the relative profitability of abatement and productive investments, and the length of the time horizon are analyzed. Optimal control models simple enough to solve analytically often give intuitively unsatisfactory, boundary-type solutions. Our model, however, does have a large domain of parameter values for which “interior” solutions are optimal. These may start with a period of exclusive productive or environmental investments and then switch over to a mix of investments that corresponds to real-life expectations.

Suggested Citation

  • Kjell Holmåker & Thomas Sterner, 1999. "Growth or environmental concern: which comes first? Optimal control with pure stock pollutants," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 2(3), pages 167-185, September.
    • Handle: RePEc:spr:envpol:v:2:y:1999:i:3:d:10.1007_bf03353909
    DOI: 10.1007/BF03353909
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    References listed on IDEAS

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