Optimal dynamic scale and structure of a multi-pollution economy

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We analyze the optimal dynamic scale and structure of a two-sector-economy, where each sector produces one consumption good and ons specific pollutant. Both pollutants accumulate at different rates to stocks which damage the natural environment. This acts as a dynamic driving force for the economy. Our analysis shows that along the optimal time-path (i) the overall scale of economic acticity may be less than maximal; (ii) the time sclae economic dynamics (change of scale and structure) is mainly determined by the lifetime of pollutNTS, their harmfulness and the discount rate; and (iii) the optimal control of economic scale and structure may be non-monotonic. These results raise important questions about the optimal design of environmental policies.
Original languageEnglish
Place of PublicationLüneburg
PublisherInstitut für Volkswirtschaftslehre der Universität Lüneburg
Number of pages34
Publication statusPublished - 2007

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