Optimal Growth When Environmental Quality Is A Research Asset

If environmental quality positively affects the productivity of labor in R&D and pollution is caused by the use of a non-renewable resource, it is socially optimal to postpone extraction and to intertemporally adjust R&D e ort. Sustained growth is feasible and optimal even though the R&D sector rests on the natural capital. This is due to the fact that services from the environment to R&D are modeled as a renewable resource. The presence of this non-rival input to R&D affects the optimal policy.