Optimal Policy with R&D-based Growth and the Risk of Environmental Disaster
The extraction of carbon energy contributes to the global stock of pollution, increasing the risk of welfare-damaging environmental disaster. The governments of the countries educate workers as scientists. Oligopolists produce goods by workers and carbon energy. R&D Firms improve effciency by scientists to supplant incumbent oligopolists through competition, which generates economic growth. In this setup, an international central planner can decentralize the social optimum by setting a precautionary tax on emissions before the occurrence of the disaster. That tax hampers pollution, but speeds up economic growth. The socially optimal level of the tax is derived.