A public‐good approach to environmental economy

• Author: Jai‐Young Choi,Eden S.H. Yu
• DOI: http://doi.org/10.1111/ijet.12170
• Date: 01 September 2019
• Published date: 01 September 2019

A public-good approach to environmental economy

Jai-Young Choi



and Eden S.H. Yu

y

This paper investigates the economic implications of environment in the 2 3 Heckscher–Ohlin

model by expounding the multidimensional roles of the environment for the economy: as a

public input used to produce goods and services; as a by-product dependent on the composition

of goods and services; and as a public good directly affecting social utility. It is shown that the

sectoral environment-output responses play a critical role for determining the economy’s factor

prices, outputs, employment, and welfare, and that, in a dynamically stable (unstable)

environment, the optimal policy is free trade (a production tax-cum-subsidy scheme).

Key words environment, public good, environmental Kuznets curve, pollution, dynamic

stability, welfare

JEL classification F11, F18, Q50

Accepted 16 May 2017

1 Introduction

Environment is the natura l or built circumstances surrounding human society, and, as such, it has

long been recognized as a fun damental determinant of economic well-being. However, it wa s not

until late 1960s that envi ronmental issues receiv ed much attention from eco nomists. This may be

attributable to the fact tha t only around that time did the world c ommunity actually begin to fee l

the environmental impact of the expanding world economy, which in fact had been taking place

since the Second World War. Th is increase in attention was a c atalyst for many economists to

investigate the linkage be tween the environment and th e economy—and even today, th e rich

body of the literature is s till growing (see, for exa mple, Ayres and Kneese 19 69; Baumol 1971;

Asako 1979; Yu 1980; Grossman and Krueger 1993, 1995; Barrett 1994; Bhagwati 1995; Park and

Brat 1995; Brander and Taylo r 1997; Ekins 1997; Markusen 19 97; Rothman 1998; Torras and

Boyce 1998; Fredriksso n 1999; Chao and Yu 2003; Daitoh 2 003; Copeland and Taylor 2 004;

Tawada and Sun 2010).

1

The environment directly and indirectly interacts with all aspects of the economy, including

consumption, production, trade, industrial location, and economic policy. For example, a good

environment improves the quality of living, increases agricultural productivity, prevents capital

equipment from early wear and tear, promotes tourism, and helps workers maintain their health to



Department of Economics and Finance, Lamar University, Beaumont, Texas, USA. Email: choijy@lamar.edu

y

Chu-Hai College of Higher Education, Tuen Mun, Hong Kong

We are indebted to the Hong Kong RGC research grant (Project #UGC/IDS13/16) and Jerry and Sheila Reese Endowed

Faculty Scholar Fund at the College of Business of Lamar University, Beaumont, Texas.

1

For a comprehensive survey of the literature, see Jayadevappa and Chhatre (2000) and Copeland and Taylor (2004).

doi: 10.1111/ijet.12170

International Journal of Economic Theory xxx (2018) 1–12 ©IAET 1

International Journal of Economic Theory

International Journal of Economic Theory 15 (2019) 269–280 © IAET 269