The Direction of Technical Change in Capital-Resource Economies

We analyze a multi-sector growth model with directed technical change where man-made capital and exhaustible resources are essential for production. The relative profitability of factor-specific innovations endogenously determines whether technical progress will be capital- or resource-augmenting. We show that convergence to balanced growth implies zero capital-augmenting innovations: in the long run, the economy exhibits purely resource-augmenting technical change. This result provides sound microfoundations for the broad class of models of exogenous/endogenous growth where resource-augmenting progress is required to sustain consumption in the long run, contradicting the view that these models are conceptually biased in favor of sustainability.Endogenous Growth; Directed Technical Change; Exhaustible Resources; Sustainability

Efficiency, Productivity and Environmental Policy: A Case Study of Power Generation in the EU

This study uses the EU public power generating sector as a case study to investigate the environmental efficiency and productivity enhancing performance of the EU ETS in its pilot phase. Using Data Envelopment Analysis methods, we measures the environmental efficiency and the productivity growth registered in public power generation across the EU over the 1996-2007 period. In the second stage of our analysis we attempt to explain changes in productivity and efficiency over time using state-of-the-art econometric techniques. Our analysis suggests two conclusions: on the one hand carbon pricing led to an increase in environmental efficiency and to a shift outwards of the technological frontier; on the other hand, the overly generous allocation of emission permits had a negative impact on both measures. These results are shown to be quite robust to changes in controls and specifications.Emissions Trading; EU ETS; Environmental Efficiency; Productivity GrowthM; Data Envelopment Analysis

Efficiency, Productivity and Environmental Policy: A Case Study of Power Generation in the EU

This study uses the EU public power generating sector as a case study to investigate the environmental efficiency and productivity enhancing performance of the European Union’s CO2 Emissions Trading Scheme (EU ETS) in its pilot phase. Using Data Envelopment Analysis methods, we measure the environmental efficiency and the productivity growth registered in public power generation across the EU over the 1996-2007 period. In the second stage of our analysis we attempt to explain changes in productivity and efficiency over time using state-of-the-art econometric techniques. Our analysis suggests two conclusions: on the one hand carbon pricing led to an increase in environmental efficiency and to a shift outwards of the technological frontier; on the other hand, the overly generous allocation of emission permits had a negative impact on both measures. These results are shown to be robust to changes in controls and specifications.Emissions Trading, EU ETS, Environmental Efficiency, Productivity Growth, Data Envelopment Analysis

Elastic Labour Supply and Optimal Taxation in a Model of Sustainable Endogenous Growth

This paper presents an endogenous growth model which features elastic labour supply in order to address the distortions created by labour income and consumption taxation. Introducing elastic labour into an AK model greatly changes the structure of the model and raises problems regarding the existence and the stability of a balanced growth path. Another important feature of this paper is the presence of environmental quality both in the utility and in the production functions and the requirement that the growth path of the economy be environmentally sustainable. Within the framework outlined, the focus of the analysis is on optimal taxation and on the effects of government policy on the growth path of the economy. The basic result is that even in this simple setting the interaction between the economic and the ecological system are complex and the policy outcomes crucially depend on the parameters of the model.Endogenous growth, Sustainable growth, Environmental externalities, Elastic labour supply

Power Law Scaling in the World Income Distribution

We show that over the period 1960-1997, the range comprised between the 30th and the 85th percentiles of the world income distribution expressed in terms of GDP per capita invariably scales down as a Pareto distribution. Furthermore, the time path of the power law exponent displays a negatively sloped trend. Our findings suggest that the cross-country average growth process appears to be scale invariant but for countries in the tails of the world income distribution, and that the relative volatility of smaller countries' growth processes have increased over time.Growth

Limit Distribution of Evolving Strategies in Financial Markets

In this paper we model a financial market composed of agents with heterogeneous beliefs who change their strategy over time. We propose two different solution methods which lead to two different types of endogenous dynamics. The first makes use of the maximum entropy approach to obtain an exponential type probability function for strategies, analogous to the well known Brock and Hommes (1997) model, but with the endogenous specification for the intensity of choice parameter, which varies over time as a consequence of the relative performances of each strategy. The second type of dynamics is obtained by setting up a master equation and solving it using recently developed asymptotic solution techniques, which yield a system of differential equations describing the evolution of the share of each strategy in the market. The performance sof the two solutions are then compared and contrasted with the empirical evidence.

The Direction of Technical Change in Capital-Resource Economies

We analyze a multi-sector growth model with directed technical change where man-made capital and exhaustible resources are essen- tial for production. The relative profitability of factor-specific inno- vations endogenously determines whether technical progress will be capital- or resource-augmenting. We show that convergence to bal- anced growth implies zero capital-augmenting innovations: in the long run, the economy exhibits purely resource-augmenting technical change. This result provides sound microfoundations for the broad class of models of exogenous/endogenous growth where resource-aug- menting progress is required to sustain consumption in the long run, contradicting the view that these models are conceptually biased in favor of sustainability.Endogenous Growth, Directed Technical Change, Exhaustible Resources, Sustainability

Carbon Leakage Revisited: Unilateral Climate Policy with Directed Technical Change

A common critique to the Kyoto Protocol is that the reduction in emissions of CO2 by countries who comply with it will be (partly) offset by the increase in emissions on the part of other countries (carbon leakage). This paper analyzes the effect of technical change on carbon leakage in a two-country model where only one of the countries enforces an exogenous cap on emissions. Climate policy induces changes in relative prices, which cause carbon leakage through a terms-of-trade effect. However, these changes in relative prices in addition affect the incentives to innovate in different sectors. We allow entrepreneurs to choose the sector for which they innovate (directed technical change). This leads to a counterbalancing induced-technology effect, which always reduces carbon leakage. We therefore conclude that the leakage rates reported in the literature so far may be too high, as these estimates neglect the effect of relative price changes on the incentives to innovate.Climate Policy, Carbon Leakage, Directed Technical Change, International Trade