Three Essays on the Application of the Overlapping Generations Model: Connecting Economic Growth, the Environment, and Conflict

This dissertation studies the dynamic relationships between economic growth, the environment, and conflict using overlapping generations models. In chapter 1, I compare pollution permits and green taxes. The model identifies pollution permits as a potential source of multiple equilibria. One nontrivial equilibrium is an environmental poverty trap (EPT) with low capital and a high stock of pollution. An economy operating around the equilibrium will gravitate toward this equilibrium in the long run. The other nontrivial equilibrium is a desirable one with high capital and a low stock of pollution. A saddle path leads to this desirable equilibrium. Alternatively, green taxes produce a unique stable equilibrium that avoids the EPT. My conclusion is that developing countries can continue to consider pollution permits as an efficient mechanism to improve environmental conditions but proceed with caution given the possibility of being drawn into an EPT. In chapter 2, I study the health effects of pollution on the accumulation of physical and human capital. Pollution negatively affects the accumulation of physical and human capital because pollution reduces longevity and the effectiveness of education expenditures. The model can generate rich dynamics in terms of the ratio of physical to human capital and the stock of pollution. One interesting case is that two stable Balanced Growth Paths (BGPs) emerge with a boundary demarcating the two. One BGP is desirable featuring a high growth rate and a low stock of pollution, whereas the other should be avoided because it is associated with a low growth rate and a high stock of pollution. Government policy can steer the economy towards the desirable BGP. Another interesting case is that cycles may emerge causing increased economic and environmental volatility. Government policy to divert more resources for pollution abatement is necessary to eliminate the cycles. In chapter 3, I study two model specifications of repeated contests over a prize. In the first specification, the contests are motivated by non-financial purposes and the conquered prize comes into agent's utility function. In the second specification, the contests are motivated by financial purposes and the conquered prize comes into the agent's budget constraint. The model gives rise to rich predictions in terms of economic growth, intensity of conflict, and dispute outcome both in the short run and in the long run. By comparing the two specifications, I conclude that the disputes motivated by non-financial purposes will escalate over time as the economy grows, whereas the disputes motivated by financial purposes may escalate in the short long but stabilize in the long run. By observing the time-series data for economic growth and conflict intensity, international mediators can trace back to the dominating cause of disputes, and thus design appropriate resolutions.