On the Foundations of Environmental Policy
Chapter 9: The Investment Decision under Joint Production
∗ with John Proops 9.1 Introduction As the discussion in Chapters 4 and 5 has made clear, and as illustrated by the case studies in Part IV of this book, when thinking about environmental issues we should think about the long run. Many, if not most, environmental problems have long historical roots and long-term consequences into the future. A branch of economics that deals with the long run is capital theory, which examines the motivations and technological conditions for the accumulation of capital, that is, the ‘manufactured means of production’, and its economic eﬀects (Barro and Sala-i-Martin 1995, Bliss 1975, Bliss et al. 2005, Burmeister 1980, Faber 1979, 1986b, Faber et al. 1999, Hennings 1996, Hicks 1946, 1973, Malinvaud 1953, Solow 1963, Sraﬀa 1960, Stephan 1995, von Hayek 1941, von Weizs¨cker 1971). a From the perspective of capital theory, having a longer time horizon for decision makers is generally considered as acting in favour of investment, as this allows a more rapid rate of capital accumulation, with consequent long-run increases in consumption possibilities. However, a more rapid economic growth may lead to more rapid depletion of natural resources and more rapid production of polluting wastes. Furthermore, pollutants may accumulate in the natural environment, thus further aggravating the negative side-eﬀects of economic growth over time. Therefore, it is a priori not clear whether employing a longer time horizon in economic decision making acts in favour or against investment in new technologies if environmental eﬀects are taken...
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