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A capital scarcity theory of the environmental Kuznets curve

Published online by Cambridge University Press:  01 October 2009

ARIASTER B. CHIMELI  and
JOHN B. BRADEN
ARIASTER B. CHIMELI
Affiliation:
Department of Economics, Bentley Hall Annex, Athens, OH 45701. Email: chimeli@ohio.edu
JOHN B. BRADEN
Affiliation:
University of Illinois at Urbana-Champaign
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Abstract

This paper offers a theory of the environmental Kuznets curve (EKC) based on the scarcity of capital relative to environmental quality. In a unified treatment of both market and transition economies of the former Soviet Bloc, we characterize a dynamic economy subject to two sources of market failure: a pollution externality and a pure public good ‘environmental quality’. We derive a policy rule to implement the social optimum in market and transition economies and show how, in general, a pollution tax or tradable permits can only implement the social optimum if accompanied by other taxes on consumption or profits.

Type
Research Article
Information
Environment and Development Economics , Volume 14 , Issue 5 , October 2009 , pp. 541 - 564
Copyright
Copyright © Cambridge University Press 2008

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