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(2014) One-Parameter GHG Emission Policy with R&D-Based Growth. In: Dynamic Optimization in Environmental Economics. Heidelberg: Springer Verlag 2014. pp. 111-126

This document examines the GHG emission policy of regions which use land, labor and emitting inputs in production and enhance their productivity by devoting labor to R&D. The problem is to organize common emission policy, if the regions cannot form a federation with a common budget and the policy parameters must be uniform for all regions. The results are the following. An agreement of the self-interested central planner that allocates
emission caps in fixed proportion to past emissions (i.e. grandfathering) leads to the Pareto optimum, decreasing emissions and promoting R&D and economic growth.

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(2013) Biodiversity Management with R&D-based Growth. HECER Discussion Paper No. 368.

Abstract: This document examines regions which employ labor and land in production, improve their productivity by devoting labor to R&D and promote biodiversity by conserving land from production. There is a self-interested central planner that is prone to lobbying and (i) dictates the regions to increase their area of conserved land in uniform proportion or (ii) sets a non-distorting uniform subsidy to conserved land. Comparing (i) and (ii) yields
following results. Regulation (i) promotes biodiversity and welfare. The replacement of regulation (i) by the subsidy (ii) decreases welfare. Applied to NATURA 2000 in the EU, this suggests that regulation is the appropriate authority for the Commission.

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Presented in Conference on “Structural Change, Dynamics, and Economic Growth”

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(2013) International Biodiversity Management with Technical Change. Published in “Green Growth and Sustainable Development”, edited by J. Crespo Cuaresma, T. Palokangas and A. Tarasyev. Springer Verlag.

I consider the case where the conservation of land yields utility through biodiversity, firms improve their efficiency by in-house R&D and a large number of jurisdictions establish a self-interested central planner for biodiversity management. I compare the regulation of land use with direct subsidies for conserved land and obtain following results. Regulation promotes biodiversity and economic growth. Because revenue-rasing taxes hamper growth, the replacement of regulation by subsidies decreases biodiversity, growth and welfare. Applied to NATURA 2000 in the EU, this suggests that regulation without any budget may be the appropriate degree of authority for the Commission.

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(2013) Green Growth and Sustainable Development. Edited by J. Crespo Cuaresma, T. Palokangas and A. Tarasyev. Springer Verlag.

  • Builds an integrated framework for analyzing green growth and sustainable development
  • Provides mathematical solutions of how pollution, biodiversity, exhaustible resources and climate change could be incorporated into models of endogenous economic growth
  • Applies dynamic systems theory to environmental issues, e. g. to the prospects of energy supply
The book examines problems associated with green growth and sustainable development on the basis of recent contributions in economics, natural sciences and applied mathematics, especially optimal control theory. Its main topics include pollution, biodiversity, exhaustible resources and climate change. The integrating framework of the book is dynamic systems theory which offers a common basis for multidisciplinatory research and mathematical tools for solving complicated models, leading to new insights in environmental issues.
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(2012) Clean versus Dirty Economic Growth. Economics Discussion Paper 649.

Abstract. This document considers an economy with many regions and two engines of growth: horizontal R&D, which increases the number of polluting product lines; and vertical R&D, which improves productivity in these lines. Pollution in any region decreases welfare in all regions. Any group of regions can form a jurisdiction where a common policy maker controls pollution. Large jurisdictions, which can better internalize externality through pollution, perform vertical R&D.  Because jurisdictions face decreasing unit costs of administration, they expand, performing first horizontal and then vertical R&D. This generates an environmental Kuznets curve (EKC) on which pollution first aggravates and then alleviates.

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Presented in DEGIT XVII conference in Milan, September 13-14, 2012.

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(2011) GHG Emissions, Lobbying, Free-Riding, and Technological Change. HECER Discussion Paper 340.

This document examines GHG emission policy in a world where labor and emissions are complementary in production, world-wide emissions decrease welfare, and total factor productivity can be locally improved by devoting labor to R&D. A subset of the countries can establish an “abatement coalition” where an international agency grants non-traded or traded GHG permits. This agency is self-interested, subject to lobbying, and has no budget of its own. The results are the following. The establishment of the “abatement coalition” enhances welfare, promotes economic growth and diminishes emissions both inside and outside the coalition. Without technological change, emission permit trade does not make any difference. With technological change due to R&D, the agreement with emission permit trade is Pareto worsening.

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Presented in

* the 15th Conference on Dynamics, Growth, and International Trade (DEGIT), September 3-4, 2010, Frankfurt am Main, Germany

* seminar on”Growth and Environment”, December 8, 2011, Technical University of Vienna, Austria

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(2011) Optimal Growth in a Two-Sector Economy facing an Expected Random Shock (co-authored with Sergei Aseev, Konstantin Besov and Simon-Erik Ollus). Trudy Inst. Mat. i Mekh. UrO RAN 17: 271–299.

We develop an optimal growth model of an open economy that uses both an old (“dirty” or “polluting”) technology and a new (“clean”) technology simultaneously. A planner of the economy expects the occurrence of a random shock that increases sharply abatement costs in the dirty sector. Assuming that the probability of an exogenous environmental shock is distributed according to the exponential law, we use Pontryagins maximum principle to find the optimal investment and consumption policies for the economy.

ISSN 0134-4889

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(2011) Optimal Patent Length and Breadth in an Economy with Creative Destruction and Non-Diversifiable Risk. Journal of Economics 102 (2011): 1-21.

Abstract. In this paper, I examine the optimal patent shape in an economy in which R&D firms innovate and imitate, households face non-diversifiable risk and there is externality in production and R&D. With non-diversifiable risk, a household’s consumption and investment decisions are interlinked. This economy contains industries of two kinds: monopoly industries with an innovator only, and duopoly industries with an innovator and an imitator. I define patent length as the expected time in which an innovation is imitated, and patent breadth as the innovator’s profit share in an industry after a successful imitation. The government can control patent length by the requirements for accepting a substitute for a patented good, and patent breadth by imposing compulsory licensing and royalties for the patentee after a successful imitation. I show that the stronger the externality in production relative to R&D is, the slower the optimal growth rate, the larger the optimal proportion of duopoly industries, and the longer and narrower the optimal patent.

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(2011) The Long-Run Effects of Mortality Decline in Developing Countries. IZA Discussion Paper No 5422. (co-authored with Ulla Lehmijoki)

Since World War II, mortality has declined in the developing world. This paper examines the effects of this mortality decline on demographic and economic growth by a familyoptimization model, in which fertility is endogenous and wealth yields utility through its status. The decline in mortality stimulates investment and generates an income stream which promotes population growth, but the desire of status hampers fertility and prevents capitaldiluting demographic expansion. If status-seeking is strong, then the decline of mortality decreases population growth below its original level.

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Presented in:

  1. Nordic Conference in Development Economics (NCDE), June 18-19, 2010, in the Helsinki Center of Economic Research (HECER), Finland (presenter: Tapio Palokangas)
  2. The 15th Conference on Dynamics, Growth, and International Trade (DEGIT), September 3-4, 2010, Frankfurt am Main, Germany (presenter: Ulla Lehmijoki).

 

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(2010) Trade, Population growth, and the Environment in Developing Countries. Journal of Population Economics 23: 1351-1370 (co-authored with Ulla Lehmijoki)

We examine pollution in a developing country where fertility is endogenous and wealth increases welfare through status. When the country has defective environmental laws, it has a comparative advantage in capital-intensive “dirty” goods. Gains from trade due to trade liberalization then increase income and boost population growth. With strong incentives to save, they also stimulate investment, which hampers population growth. Because population growth crowds out labor supply, production of capital-intensive dirty goods first increases and then decreases. This yields a typical environmental Kuznets path: pollution increases at the earlier stages but decreases at the later stages of development.

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