Environmental policy and social status preference for education in an Uzawa–Lucas model

Abstract

AbstractWe investigate the growth effect of environmental policy in the Uzawa‐Lucas model with social status preference for education, finding for resource reallocation effect and substitution effect. The former implies decreasing human capital by raising the occupational cost of education, while the latter implies increasing human capital by enhancing the status‐seeking need for education. Thus, stricter environmental policy has a U‐shaped effect on the growth rate. However, the policy has no effect on the growth rate in the absence of social status preference. Our results imply that social status preference is essential for environmental policy to enhance growth rate.