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LABOR SUPPLY AND GROWTH EFFECTS OF ENVIRONMENTAL POLICY UNDER TECHNOLOGICAL RISK

Published online by Cambridge University Press:  17 December 2010

Christiane Clemens  and
Karen Pittel
Christiane Clemens
Affiliation:
University of Bielefeld
Karen Pittel*
Affiliation:
Ifo Institute and University of Munich
*
Address correspondence to: Karen Pittel, Ifo Institute for Economic Research and University of Munich, Poschingerstr. 5, 81679 Munich, Germany; e-mail: pittel@ifo.de.
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Abstract

This paper analyzes the effects of technological risk on long-run growth when labor supply is elastic and production gives rise to a pollution externality. We show that the randomness of production, as well as the endogeneity of labor supply, affects the equilibrium solutions for the social planner and for the market economy. We analyze the effects of environmental policy, discuss conditions for an optimal policy, and find that the response of labor supply to changes in the model parameters and to variations in the policy instruments crucially depends on the volatility of output.

Keywords

Stochastic GrowthPollutionAbatementElastic Labor Supply
Type
Articles
Information
Macroeconomic Dynamics , Volume 15 , Issue 1 , February 2011 , pp. 31 - 59
Copyright
Copyright © Cambridge University Press 2010

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