Creative Destruction vs Destructive Destruction ? : A Schumpeterian Approach for Adaptation and Mitigation
Résumé
This article aims to show how a market exposed to a catastrophic event finds the balance
between adaptation and mitigation policies through R&D policy. We also study the effect of
pollution tax on the long-run growth rate and the implications of catastrophe probability on
this effect. Our results suggest that the economy can increase its R&D level even with a higher
catastrophe probability. This is possible only if the penalty rate due to an abrupt event is
sufficiently high. We show that pollution tax could increase the long-run growth. Additionally,
the catastrophe probability increases the amplitude of this positive effect if the penalty rate
is high enough. Lastly, we show that the pollution growth could be higher with less polluting
inputs, which we call a Jevons type paradox.
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