Endogenous Growth and the Possibility of Eliminating Pollution

This paper studies the effect on optimal growth of the possibility that at some moment in the future a technology is discovered that eliminates pollution. We formalize this possibility as a probability p per unit of time of discovering such a technology. We focus on steady-state behavior and show that the optimal rate of growth increases with the hope of eliminating pollution. For an economy where there is no growth in the steady state of the optimal trajectory when p=0, a positive p may imply positive growth. The higher the value of the probability, the larger the endogenous rate of growth.