Indeterminacy and Pollution Haven Hypothesis in a Dynamic General Equilibrium Model

Akihiko Yanase

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)

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
Externally publishedYes

Keywords

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

ASJC Scopus subject areas

  • Economics and Econometrics

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