ABSTRACT

We investigate how the relationship between capital accumulation and pollution is affected by the source of pollution: production or consumption. We are interested in polluting waste that cannot be naturally absorbed, but for which recycling efforts aim to avoid massive pollution accumulation with harmful consequences in the long run. Based on both environmental and social welfare perspectives, we determine how the interaction between growth and polluting waste accumulation is affected by the source of pollution, i.e., either consumption or production, and by the fact that recycling may or may not act as an income generator, i.e., either capital-improving or capital-neutral recycling efforts. Several new results are extracted regarding optimal recycling policy and the shape of the relationship between production and pollution. Beside the latter concern, we show both analytically and numerically that the optimal control of waste through recycling allows to reaching larger (resp., lower) consumption and capital stock levels under consumption-based waste compared to production-based waste while the latter permits to reach lower stocks of waste through lower recycling efforts.