Hostname: page-component-586b7cd67f-g8jcs Total loading time: 0 Render date: 2024-11-26T11:15:43.809Z Has data issue: false hasContentIssue false
  • English
  • Français

LABOR SUPPLY AND GROWTH EFFECTS OF ENVIRONMENTAL POLICY UNDER TECHNOLOGICAL RISK

Published online by Cambridge University Press:  17 December 2010

Christiane Clemens  and
Karen Pittel
Christiane Clemens
Affiliation:
University of Bielefeld
Karen Pittel*
Affiliation:
Ifo Institute and University of Munich
*
Address correspondence to: Karen Pittel, Ifo Institute for Economic Research and University of Munich, Poschingerstr. 5, 81679 Munich, Germany; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper analyzes the effects of technological risk on long-run growth when labor supply is elastic and production gives rise to a pollution externality. We show that the randomness of production, as well as the endogeneity of labor supply, affects the equilibrium solutions for the social planner and for the market economy. We analyze the effects of environmental policy, discuss conditions for an optimal policy, and find that the response of labor supply to changes in the model parameters and to variations in the policy instruments crucially depends on the volatility of output.

Keywords

Stochastic GrowthPollutionAbatementElastic Labor Supply
Type
Articles
Information
Macroeconomic Dynamics , Volume 15 , Issue 1 , February 2011 , pp. 31 - 59
Copyright
Copyright © Cambridge University Press 2010

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Ayong Le Kama, Alain and Schubert, Katheline (2004) Growth, environment and uncertain preferences. Environmental and Resource Economics 28, 31–53.CrossRefGoogle Scholar
Baranzini, Andrea and Bourguignon, François (1995) Is sustainable growth optimal? International Tax and Public Finance 2, 341–356.CrossRefGoogle Scholar
Beltratti, Andrea, Chichilnisky, Graciela, and Heal, Geoffrey M. (1998) Uncertain future preferences and conservation. In Chichilnisky, Graciela and Vercelli, Alessandro (eds.), Sustainability: Dynamics and Uncertainty, pp. 257–275. Dordrecht: Kluwer Academic.CrossRefGoogle Scholar
Caballero, Ricardo J. (1990) Consumption puzzles and precautionary savings. Journal of Monetary Economics 25, 113–136.CrossRefGoogle Scholar
Clemens, Christiane (2004) Status, risk-taking and intertemporal substitution in an endogenous growth model. Journal of Economics 83 (2), 103–123.CrossRefGoogle Scholar
Clemens, Christiane (2005) Income taxation, productive government expenditure and stochastic growth: On conditions for an optimal policy and the role of the risk premium. Topics in Macroeconomics 5 (1), Article 14, BEPress.CrossRefGoogle Scholar
Clemens, Christiane (2009) Stochastic growth and factor income risk. German Economic Review 10 (4), 422–447.CrossRefGoogle Scholar
Clemens, Christiane and Soretz, Susanne (1997) Macroeconomic effects of income taxation in a model of stochastic growth. Finanzarchiv, N. F. 54 (4), 471–493.Google Scholar
Clemens, Christiane and Soretz, Susanne (2004) Optimal fiscal policy, uncertainty and growth. Journal of Macroeconomics 26 (4), 679–697.CrossRefGoogle Scholar
Corsetti, Giancarlo (1997) A portfolio approach to endogenous growth: Equilibrium and optimal policy. Journal of Economic Dynamics and Control 21, 1627–1644.CrossRefGoogle Scholar
Domar, Evsey D. and Musgrave, Richard A. (1944) Proportional income taxation and risk-taking. Quarterly Journal of Economics 59, 388–422.CrossRefGoogle Scholar
Eaton, Jonathan (1981) Fiscal policy, inflation and the accumulation of risky capital. Review of Economic Studies 48, 435–445.CrossRefGoogle Scholar
Gradus, Raymond and Smulders, Sjak A. (1993) The trade-off between environmental care and long-term growth: Pollution in three prototype growth models. Journal of Economics 58 (1), 25–51.CrossRefGoogle Scholar
Grimaud, Andre (1999) Pollution permits and sustainable growth in a Schumpeterian model. Journal of Environmental Economics and Management 38 (3), 249–266.CrossRefGoogle Scholar
Grimaud, Andre and Rougé, Luc (2005) Polluting non-renewable resources, innovation and growth: Welfare and environmental policy. Resource and Energy Economics 27, 109–129.CrossRefGoogle Scholar
Groth, Christian and Schou, Poul (2007) Growth and non-renewable resources: The different roles of capital and resource taxes. Journal of Environmental Economics and Management 53, 80–98.CrossRefGoogle Scholar
Hubbard, R. Glenn, Skinner, Jonathan, and Zeldes, Stephen P. (1994) The importance of precautionary motives in explaining individual and aggregate saving. Carnegie–Rochester Conference Series on Public Policy 40, 59–126.CrossRefGoogle Scholar
Intergovernmental Panel on Climate Change. [IPCC] (2007) Climate Change 2007: Impacts, Adaptation and Vulnerability. Summary for Policy-Makers. IPCC.Google Scholar
King, Robert G. and Rebelo, Sergio T. (1999) Resuscitating real business cycles. In Taylor, John B. and Woodford, Michael (eds.), Handbook of Macroeconomics, vol. Ib, pp. 927–1007. Amsterdam: North-Holland.CrossRefGoogle Scholar
Leland, Hayne E. (1968) Saving and uncertainty: The precautionary demand for saving. Quarterly Journal of Economics 82, 465–473.CrossRefGoogle Scholar
Levhari, D. and Srinivasan, T. N. (1969) Optimal savings under uncertainty. Review of Economic Studies 36, 153–163.CrossRefGoogle Scholar
Malliaris, Anastasios G. and Brock, William A. (1982) Stochastic Methods in Economics and Finance. Amsterdam: North-Holland.Google Scholar
Merton, Robert C. (1982) On the microeconomic theory of investment under uncertainty. In Arrow, Kenneth J. and Intriligator, Michael D. (eds.), Handbook of Mathematical Economics, vol. II, pp. 601–669. Amsterdam: North-Holland.Google Scholar
Obstfeld, Maurice (1994) Risk-taking, global diversification, and growth. American Economic Review 84, 1310–1329.Google Scholar
Pindyck, Robert S. (2002) Optimal timing problems in environmental economics. Journal of Economic Dynamics and Control 26, 1677–1697.CrossRefGoogle Scholar
Pindyck, Robert S. (2006) Uncertainty in Environmental Economics. NBER working paper 12752, National Bureau of Economic Research, Cambridge, MA.CrossRefGoogle Scholar
Pittel, Karen (2002) Sustainability and Endogenous Growth. Cheltenham, UK: Edward Elgar.Google Scholar
Romer, Paul M. (1986) Increasing returns and long-run growth. Journal of Political Economy 94, 1002–1037.CrossRefGoogle Scholar
Sandmo, Agnar (1970) The effect of uncertainty on savings decisions. Review of Economic Studies 37, 353–360.CrossRefGoogle Scholar
Schou, Poul (2000) Polluting non-renewable resources and growth. Environmental and Resource Economics 16 (2), 211–227.CrossRefGoogle Scholar
Schou, Poul (2002) When environmental policy is superfluous: Growth and polluting resources. Scandinavian Journal of Economics 104, 605–620.CrossRefGoogle Scholar
Smith, William T. (1996) Taxes, uncertainty, and long-term growth. European Economic Review 40 (8), 1647–1664.CrossRefGoogle Scholar
Smulders, Sjak A. and Gradus, Raymond (1996) Pollution abatement and long-term growth. European Journal of Political Economy 12, 505–532.CrossRefGoogle Scholar
Soretz, Susanne (2003) Stochastic pollution and environmental care in an endogenous growth model. Manchester School 71 (4), 448–469.CrossRefGoogle Scholar
Soretz, Susanne (2004) Stochastic environmental policy, risk-taking, and growth: Discretion versus commitment. International Journal of Global Environmental Issues 4, 58–72.CrossRefGoogle Scholar
Soretz, Susanne (2007) Efficient dynamic pollution taxation in an uncertain environment. Environmental and Resource Economics 36 (1), 57–84.CrossRefGoogle Scholar
Stern, Nicholas (2006) The Economics of Climate Change—The Stern Review. Cambridge, UK: Cambridge University Press.Google Scholar
Stiglitz, Joseph E. (1969) The effects of income, wealth, and capital-gains taxation on risktaking. Quarterly Journal of Economics 83, 263–283.CrossRefGoogle Scholar
Turnovsky, Stephen J. (1993) Macroeconomic policies, growth, and welfare in a stochastic economy. International Economic Review 34, 953–981.CrossRefGoogle Scholar
Turnovsky, Stephen J. (2000) Fiscal policy in a stochastically growing economy with elastic labor supply. Journal of Public Economic Theory 2, 389–433.CrossRefGoogle Scholar
Turnovsky, Stephen J. (2003) On the introduction of endogenous labour income in deterministic and stochastic growth models. In Altug, Sumru, Chadha, Jagijt S., and Nolan, Charles (eds.), Dynamic Macroeconomic Analysis. Theory and Policy in General Equilibrium, pp. 487–508. Cambridge, UK: Cambridge University Press.CrossRefGoogle Scholar
Turnovsky, Stephen J. and Smith, William T. (2006) Equilibrium consumption and precautionary saving in a stochastically growing economy. Journal of Economic Dynamics and Control 30, 243–278.CrossRefGoogle Scholar
Zeldes, Stephen P. (1989) Optimal consumption with stochastic income: Deviations from certainty equivalence. Quarterly Journal of Economics 104, 275–298.CrossRefGoogle Scholar