1 Department of Economics, Faculty of Social Sciences, Københavns Universitet2 Økonomisk Institut, Department of Economics, Faculty of Social Sciences, Københavns Universitet3 Universite de Poitiers4 Økonomisk Institut, Department of Economics, Faculty of Social Sciences, Københavns Universitet5 Universite de Poitiers
We advance an original assumption whereby a good state of the environment positively affects labor productivity in R&D such that deteriorating environmental quality negatively impacts R&D. We study the implications of this assumption for the optimal solution in an R&D-based model of growth, where the use of a non-renewable resource generates pollution. We show that in such a case, it is socially optimal to postpone extraction, as opposed to the situation in which the environment has no effect on productivity in R&D. Furthermore, insofar as environmental quality declines and subsequently recovers, we find that it is optimal to re-allocate employment to R&D in line with productivity changes. If environmental quality recovers only partially from pollution, R&D effort optimally begins above its long-run level, then progressively declines to a minimum and eventually increases to its steady-state level.
Research in Economics, 2011, Vol 65, Issue 4, p. 340-352