In this note we study the distortions in an endogenous growth model developed by Grimaud and Tournemaine (2007), where new pieces of knowledge are produced in a R&D sector and used to reduce pollution emissions. Using this model along with a realistic calibration, we conclude that the economy strongly underinvests in R&D, such that the policy maker would need to implement a strong tax-subsidy scheme to correct it. We suggest that a subsidy to human capital can also decrease the gap between market and optimal allocations.
Sequeira, T. N., & Ferreira-Lopes, A. (2014). Quantifying distortions from pollution in a R&D endogenous growth model. Estudios De Economía, 41(1), pp. 149–159. Retrieved from https://estudiosdeeconomia.uchile.cl/index.php/EDE/article/view/34427