Optimal Environmental Policy and the Dynamic Property in LDCs

Abstract

"This paper has provided a model framework of foreign assistance policy in the context of dynamic optimal control and investigated the environmental policies in LDCs that received some financial support from abroad. The model framework features a specific behavior of the social planner who determines the level of voluntary expenditure for preservation of natural environment. Because more financial needs for natural environmental protection means less allowance of growth-oriented investment, the social planner confronts a trade-off problem between economic growth and environmental preservation. To tackle with this clearly, we have built a dynamic model with two control variables: per-capita consumption and voluntary expenditure for natural environment. It has been proved that people in LDCs need a voluntary development of the eco-consciousness for better environmental situation. Because this leads to declining of the rate of economic growth, it may be justified that more foreign aid for domestic economic growth should be financed. By investigating some stability properties of the dynamic system, we have also reached an interesting proposition that the feasibility and effectiveness of the optimal control policy pursued by the social planner of LDCs depend on the peoples consciousness towards natural environment."