The Growth-Environment Trade-Off: Horizontal vs. Vertical Innovations

38 Pages Posted: 20 Nov 2000

See all articles by Andre Grimaud

Andre Grimaud

GREMAQ, IDEI and LEERNA - University of Toulouse 1

Francesco Ricci

University of Cergy-Pontoise - THEMA

Date Written: MAY 1999

Abstract

This paper explores the trade-off between economic growth and environmental quality along two paradigms of endogenous growth theory: variety expansion (HIP) and quality improvements (VIP). We compare the policies that match the decentralised economies' paths with the optimal "strong sustainable" growth path, characterised by growth in consumption and improvements in environmental quality. Three policy tools are employed: subsidies to monopolists and R&D, and taxes on emissions. The latter is increasing at the optimum, to keep the weight of tax revenues over output constant. All policy tools equal, the growth rate is higher in the VIP than in the HIP. The optimal subsidy to R&D is therefore greater and the cumulative loss in output smaller under HIP than the VIP.

JEL Classification: O41, Q20

Suggested Citation

Grimaud, Andre and Ricci, Francesco, The Growth-Environment Trade-Off: Horizontal vs. Vertical Innovations (MAY 1999). Available at SSRN: https://ssrn.com/abstract=200548 or http://dx.doi.org/10.2139/ssrn.200548

Andre Grimaud

GREMAQ, IDEI and LEERNA - University of Toulouse 1 ( email )

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Francesco Ricci (Contact Author)

University of Cergy-Pontoise - THEMA ( email )

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France
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