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Does Technical Progress Increase Long-Run Welfare?

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  • Stefano Bartolini
  • Luigi Bonatti

Abstract

We study an economy where households invest in capital and cause negative externalities on a renewable resource entering their utility function. There are also endogenous technical progress boosting labor productivity and the possibility of investing in resource-saving technical progress. Within this setup, we compare two regimes. Under “laissez-faire”, households ignore the externalities they cause: the resource is asymptotically depleted and perpetual economic growth is generated, but households’ welfare remains stagnant in the long run. Under an authority imposing the internalization of the externalities, long-run growth tends to be depressed but the resource is preserved and households’ welfare increases forever.

Suggested Citation

  • Stefano Bartolini & Luigi Bonatti, 2004. "Does Technical Progress Increase Long-Run Welfare?," Department of Economics University of Siena 435, Department of Economics, University of Siena.
    • Handle: RePEc:usi:wpaper:435
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    File URL: http://repec.deps.unisi.it/quaderni/435.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Endogenous growth; Induced technical progress; Market failures; Externalities;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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