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Investment Choice with Polluted Capital
Author(s) -
Etner Johanna,
Jouvet Pierre A.
Publication year - 2000
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/1467-8454.00105
Subject(s) - economics , uniqueness , production (economics) , investment (military) , environmental quality , externality , overlapping generations model , microeconomics , futures studies , stability (learning theory) , capital (architecture) , function (biology) , capital accumulation , natural resource economics , mathematics , ecology , computer science , geography , profit (economics) , mathematical analysis , statistics , archaeology , machine learning , evolutionary biology , politics , political science , law , biology
This paper develops a two‐sector overlapping generations model in which one sector produces an externality on the environmental quality and the other has no effect. We assume that environmental quality degradation results from production activity of one sector. Then, we characterise the dynamical system globally and establish sufficient conditions for the global uniqueness of a perfect‐foresight equilibrium path in the case of a Cobb‐Douglas production function and a CES utility function. We show that the existence and the stability of the steady state depend on substitution and income effect and on the degree of pollution.