posted on 2017-01-16, 16:51authored byAlessandro Vescia
This thesis considers how pollution affects economic activities. Chapters 2
considers effects of pollution on humans' health. In an overlapping generation
model with capital accumulation, agents' status is negatively affected
by pollution. Individuals may invest in private health to reduce the burden
of the environmental degradation, but this reduces the aggregate savings.
Lower savings reduce the capital accumulation dynamic, reducing the optimal
growth of the economy. The government can intervene to improve
agents' health with public health spending, which crowds out private health
investment and is complementary to savings. This work shows that, according
to the initial level of capital of the economy and to the “net dirtiness",
i.e. the difference of the pollution elasticity with respect to output minus
the public health spending elasticity, the economy experiences different longrun
growth equilibriums. Chapter 3 evaluates and compare the capacity of
an emission tax and of free issued (non-auctioned) permits in terms of the
incentives in investing in emission abatement research and in the social welfare.
In the model, firms compete a la Cournot with knowledge spillovers.
There are two different timing of the game: one where the government can
credibly commit to the level of environmental policy; and the second timing
where the government cannot credibly commit, and adjust optimally the
policy after the firms innovate. This work shows that firms invest more in
research when the government can credibly commit to the chosen level of
policy. Chapter 4 investigates the role of pollution as a source of income inequality.
Blackburn and Chivers (2015), in an overlapping generation model
without credit market imperfections but in presence of loss aversion and uncertain
return of investment, model agents that inherited from their parent
and leave as a bequest to their offspring a positive amount of human capital.
If the human capital is below a certain threshold, the loss aversion strongly
influence agents, thus avoiding the investment. This reduces their possibility
of realising profits and agents may end up in a low-income growth equilibrium
with persistent income inequality. We extend their model introducing
the pollution flow, which reduces the productivity of human capital and an
abatement policy, which mitigates the negative effect of pollution. This work shows that in the presence of pollution, income inequality may increase and
that the government can mitigate it through pollution abatement.