Simulation of a multisector ecological and economic system (Q1974323)

This paper studies a multi-sector ecological and economic system. The economic system consists of n mutually independent neoclassical production sectors. The ecological system is described by a differential equation describing the change in industrial pollution generated by the economic system. The economy chooses the fractions of final output allocated to sectoral investment, consumption and pollution control in order to maximize an intertemporal utility function of consumption and environment quality (pollution level). The paper finds the optimal solution for the system, and derives the condition on the utility function under which there is a unique optimal consumption path. The paper shows that if the utility function is linear in consumption, the simultaneous allocation of output to consumption, investment and environmental control is impossible. Furthermore, if neoclassical productions are replaced by the piecewise linear production functions, simple and effective algorithms for finding an analytical solution can be constructed without loss of reality.