Journal
FINANZARCHIV
Volume 74, Issue 1, Pages 71-87Publisher
MOHR SIEBECK
DOI: 10.1628/001522118X15097191506475
Keywords
circular economy; linear economy; optimal recycling; Hotelling rule; Pigouvian taxation
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This paper sets up a Ramsey model with natural resources to study the optimal recycling of polluting raw materials. Under plausible conditions it is optimal for the economy to go through an initial linear phase with no recycling followed by a circular phase where a fraction of materials is recycled to alleviate growing natural resource scarcity and environmental degradation. In the presence of a Pigouvian tax on nonrecycled materials a competitive market economy will ensure the optimal degree of recycling.
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