Endogenous Growth and Environmental Preservation

This paper presents a model of endogenous growth with a reproducible good and a finite but regenerable resource which represents the environment. In conditions of equilibrium growth, the stock of the environmental asset remains constant, while the output of the reproducible good grows at a steady rate. This is possible only because an appropriate share of the reproducible output is devoted to reducing the negative effects of production on the environment through emission abatement and waste recycling. For this to happen, those who use the environmental resource should pay a shadow price which is linked dynamically to the social price of the reproducible output; it is also required that constant returns prevail in the sector devoted to environmental preservation. Environmental resources all share the feature of being finite. The problem then arises whether sustained economic growth can be compatible with environmental preservation.