The Kindergarten Rule of Sustainable Growth, Issue 9597
National Bureau of Economic Research, 2003 - Economic development - 52 pages
The relationship between economic growth and the environment is not well understood: we have only limited understanding of the basic science involved and very limited data. Because of these difficulties it is especially important to develop a series of relatively simple theoretical models that generate stark predictions. This paper presents one such model where societies implement the Kindergarten rule of sustainable growth.' Following the Kindergarten rule means implementing zero emission technologies in either finite time or asymptotically. The underlying simplicity of the model allows us to provide new predictions linking the path of environmental quality to pollutant characteristics (stocks vs. flows; toxics vs. irritants) and primitives of the economic system. It also provides a novel Environmental Catch-up Hypothesis.
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abatement intensity abatement regime active abatement Aghion and Howitt approaches the Kindergarten balanced growth path candidate solution capital and pollution capital falls capital stock constant cost of abatement cost of pollution diminishing returns dK/dt economic growth elasticity of marginal eliminate empirical endogenous growth Environmental Catch-up Hypothesis environmental improvement factors of production finite firm level gross output growth theory hence implies income elasticity income level initial conditions intensity of abatement Kindergarten rule level knowledge spillovers Kuznets Curve level of environmental marginal abatement costs marginal damage marginal disutility marginal product marginal utility natural regeneration NBER Number opportunity cost optimal parameter pollutant characteristics pollution stock Poor country pristine environment product of capital Proof of Proposition rate of change rate of environmental remain requires rule of sustainable shadow cost shadow price shadow value solve Stokey sustainable growth Switching Locus technological progress transition paths transversality condition value of capital