The Role of R&D with a Continuum of Technologies and Environmental Degradation: An Optimal Control Approach

29 Pages Posted: 27 Sep 2013 Last revised: 17 Jul 2014

See all articles by Anton A. Bondarev

Anton A. Bondarev

WWZ Universit├Ąt Basel

Alfred Greiner

Bielefeld University - Department of Business Administration and Economics

Date Written: September 1, 2013

Abstract

In this paper we develop an economic growth model that includes anthropogenic climate change. We explicitly include a research sector that creates new technologies and simultaneously expands productivities of existing technologies. The environment is affected by R&D activities both negatively, through increase of output from productivity growth, as well as positively, as new technologies are less harmful for the environment. We consider three different versions of the model. In the first version, there are no constraints with respect to research spending, while the R&D sector affects the rest of the economy. In this version, the environmental damages are lower than in the model with simple exogenous technical change. Next, we consider the research dynamics with a constant R&D budget set by the agent. We find that there exist two different steady states of this economy, one with higher productivities and less new technologies being developed, and the other with more technologies being created. In the last version, finally, we allow for dynamic R&D spending. For this version, it is demonstrated that sustained economic growth with preservation of the environment is possible given certain conditions as regards the technology and R&D spending.

Keywords: Climate change, green growth, vertical and horizontal innovations, optimal control

JEL Classification: C61, O31, O44

Suggested Citation

Bondarev, Anton A. and Greiner, Alfred, The Role of R&D with a Continuum of Technologies and Environmental Degradation: An Optimal Control Approach (September 1, 2013). Bielefeld Working Papers in Economics and Management No. 20-2013, Available at SSRN: https://ssrn.com/abstract=2331865 or http://dx.doi.org/10.2139/ssrn.2331865

Anton A. Bondarev

WWZ Universit├Ąt Basel ( email )

Basel, 4051
Switzerland

Alfred Greiner (Contact Author)

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
Bielefeld, 33501
Germany
+49 521 106 4859 (Phone)
+49 521 106 67120 (Fax)

HOME PAGE: http://phoenix.wiwi.uni-bielefeld.de/lehrbereiche/vwl/wipol

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