Environmental Policy and Environmental Change in a Three-Sector Growth Model

Abstract

This paper process a three-sector economic growth model with physical capital accumulation and environmental change on the basis of the neoclassical growth theory with an alternative approach to household behavior. The model synthesizes Uzawa’s two-sector economic growth model and the environmental change in some traditional dynamic models of environmental economics. Both labor and capital distributions among the three sectors are determined by market mechanisms under the government intervention. We simulate the model to demonstrate existence of equilibrium points and motion of the dynamic system. In particular, we demonstrate effects of changes in the government policy and motion of the dynamic system. In particular, we demonstrate effects of changes in the government policy and preference upon both short-run and long-run economic growth as predicated by the Solow model and exhibits the same relation between the income and environmental change by the environmental Kuznets curve.