THE TRADE-OFF BETWEEN ENVIRONMENTAL CARE AND LONG-TERM GROWTH - POLLUTION IN 3 PROTOTYPE GROWTH-MODELS

The effects of increased environmental care on optimal technology choi ce and long-term growth are studied for an economy in which pollution is a side-product of physical capital used in production. First, it is shown that in case of a standard neoclassical production structure, t he result is a less capital-intensive production process whereas the l ong-run growth rate is not affected. Next, we introduce assumptions of the endogenous growth literature. When there are constant returns to physical capital, an increase in abatement activities crowds out inves tment and lowers the endogenous growth rate. When human capital accumu lation is the engine of growth, physical capital intensity declines an d the endogenous optimal growth rate is unaffected by increased enviro nmental care or is even higher, depending on whether or not pollution influences agents' ability to learn.