Endogenous Policy Choice: The Case of Pollution and Growth

Larry E. Jones, Rodolfo E. Manuelli

Research output: Contribution to journalArticlepeer-review

87 Scopus citations

Abstract

What determines the relationship between pollution and growth? Are the forces that explain the behavior over time of these quantities potentially useful for understanding more generally the relationship between policies and growth? In this paper we make a first attempt to analyze the equilibrium behavior of two quantities - the level of pollution and the level of income - in a setting in which societies choose, via voting, how much to regulate pollution. Our major finding is that, consistent with the evidence, the relationship between pollution and growth need not be monotone, and that the precise equilibrium nature of the relationship between the two variables depends on whether individuals vote over effluent charges or directly restrict the choice of technology. Moreover, our analysis of the pollution problem suggests that, more generally, endogenous policy choices should be taken seriously as potential sources of heterogeneity when cross-country differences in economic performance are studied. Journal of Economic Literature Classification Numbers: E2, O1, O2, Q2.

Original languageEnglish (US)
Pages (from-to)369-405
Number of pages37
JournalReview of Economic Dynamics
Volume4
Issue number2
DOIs
StatePublished - Apr 2001

Bibliographical note

Funding Information:
What determines the relationship between pollution and growth? Are the forces that explain the behavior over time of these quantities potentially useful for understanding more generally the relationship between policies and growth? In this paper we make a first attempt to analyze the equilibrium behavior of two quantities―the level of pollution and the level of income― in a setting in which societies choose, via voting, how much to regulate pollution. Our major finding is that, consistent with the evidence, the relationship between pollution and growth need not be monotone, and that the precise equilibrium nature of the relationship between the two variables depends on whether individuals vote over effluent charges or directly restrict the choice of technology. Moreover, our analysis of the pollution problem suggests that, more generally, endogenous policy choices should be taken seriously as potential sources of heterogeneity when cross-country differences in economic performance are studied. Journal of Economic Literature Classification Numbers: E2, O1, O2, Q2. 2001 Academic Press 1We thank Graziella Bertocchi; V. V. Chari; Hal Cole; Mike Dotsey; Jeremy Greenwood; Arik Levinson; Sergio Rebelo; Karl Shell; seminar participants at the University of Chicago, Cornell University, Rochester University, the University of Minnesota, the University of Michigan, the University of Wisconsin, and the Federal Reserve Bank of Richmond; the editors and referees for their comments; and the National Science Foundation for financial support. 2 To whom correspondence should be addressed.

Fingerprint Dive into the research topics of 'Endogenous Policy Choice: The Case of Pollution and Growth'. Together they form a unique fingerprint.

Cite this