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Growth with Endogenous Risk of Biological Invasion
Author(s) -
Barbier Edward B.,
Shogren Jason F.
Publication year - 2004
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1093/ei/cbh083
Subject(s) - spillover effect , externality , economics , endogenous growth theory , welfare , consumption (sociology) , production (economics) , damages , unintended consequences , microeconomics , public economics , human capital , social science , sociology , political science , law , market economy , economic growth
We model biological invasions as an unintended by‐product of capital accumulation. We distinguish three spillover effects: (1) a negative production externality, (2) a negative or positive consumption externality and (3) an increase in the risk of future welfare loss. We also consider the implications when households self‐protect by allocating income to reduce the potential damages from a biological invasion. An optimal output tax for production externalities is straightforward and can be augmented in the case of negative or positive spillover effects on consumer welfare. Policies to correct the effect of invasions on endogenous risk are more difficult to design.