Complexities due to sluggish expansion of backstop technologies

This paper considers an economy using a technology that adds to a stuck of pollution. Examples that come to mind are SO-emissions from burning coal ac cumulating in the soil and CO2-emissions from fossil-energy use which art: retained in the atmosphere. The stock of pollutants is subject to natural d ecay. albeit not necessarily of the simple often assumed linear type. In ad dition, a clean or so-called backstop technology is available that requires costly investments but is: characterized by low variable costs (e.g., sola r energy or wind power). The costly investments imply a slow build-up of th e capacity of the backstop, On the modelling side. this is an essential ext ension of most of the literature that considers the: unrealistic case where a backstop is instantaneously available. The second extension the present paper makes is to consider not only the planning problem but also the compe titive outcomes. One of the interesting results is that stable limit cycles may characterize the socially optimal long-run outcome as well as the comp etitive equilibrium. Ln a competitive equilibrium pollution-control policy is not necessarily optimal in the sense of corresponding with the social op timum. Although cycling can occur in a competitive equilibrium just as: in the social optimum, relaxation of the control increases the set of paramete r values for which complex and unstable behavior arises.