Indeterminacy and Pollution Haven Hypothesis in a Dynamic General Equilibrium Model

Akihiko Yanase

    Research output: Contribution to journalArticle

    Abstract

    This paper develops a two-sector dynamic general equilibrium model of a small open economy in which production activities are accompanied by pollution emissions that have a negative effect on welfare. It is shown that the dynamic equilibrium may display indeterminacy (i.e., continuum of dynamic equilibrium paths converging to a common steady state), depending on (i) the relationship between capital intensity and pollution intensity, (ii) the property of households’ discount rate as a function of total pollution, and (iii) the pollution-consumption relationship in instantaneous utility. In addition, the effect of environmental policy on the economy’s comparative advantage and its relation to indeterminacy are examined.

    Original languageEnglish
    Pages (from-to)959-980
    Number of pages22
    JournalOpen Economies Review
    Volume25
    Issue number5
    DOIs
    Publication statusPublished - 2014 Oct 31

    Keywords

    • Dynamic general equilibrium model
    • Indeterminacy
    • Pollution haven hypothesis
    • Small open economy

    ASJC Scopus subject areas

    • Economics and Econometrics

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