ABSTRACT
Et = mE t _ 1 - Wt _ 1 + (l-m)P t = 1,2, ... (3)
maximize u(C,E) (4)
s.t. C F(K,W) - K E mE - W + (l-m)P
Fl = 1 u F = u _1_ , 1 2 2 l-m (5)
where ui ' Fi denote partial derivatives in the usual way.
where G(Kt _ 1 , Wt _ 1 ) is gross output at a function of capital services Kt_l and environmental services Wt_l. Net output G - nKt _ i is gross output minus depreciation. Put F(K, W) = G(K,~) + (l-n)K to reduce the problem to the form (1).
