A Green Solowian Model for Sustainable Economic Growth
29 Pages Posted: 13 Feb 2012 Last revised: 27 Apr 2012
Date Written: April 27, 2012
This paper examines whether a non-instantaneous relationship between CO2 emission and temperature increase can affect asymptotic stability in a Golden rule context, when utility is not only determined by the level of per capita consumption but also allows for the negative influence of the temperature increase.
In particular, by exploiting a difference-differential equation (DDE) framework, we determine an interval for the steady state temperature increase which characterizes asymptotic stability completely.
We apply this framework to assess a Green Solowian Rule steady state, suggesting that any lacks or excesses in the saving rate of an economy with respect to the optimal growth path are affected by the propensity to prevent future climate catastrophes. It is important to emphasise that a lower return of physical capital, which generally affects developed countries, adversely influences asymptotic stability.
Keywords: difference-differential equations, integrated assessment models, global warming, Green Solowian Rule, asymptotic stability
JEL Classification: C62, Q54, Q58
Suggested Citation: Suggested Citation