Essays on Economic Activity and the Environment

This thesis consists of three essays on the nexus between economic activity and the environment and addresses issues such as growth, crime, and environmental quality. Chapter 1 investigates the relationship between human capital accumulation and health damaging pollution. It is shown that global dynamics are featured by a path dependency. There is either cyclical convergence to a low income equilibrium or positive long-run growth with an Environmental Kuznets Curve, depending on the initial conditions with respect to human capital. Also, as far as the evidence is concerned, the model gives an empirically relevant correlation between the volatility of income and the mean value of income. Chapter 2 focuses on a relatively unexplored theme of the economics literature, linking criminal activity and pollution. An emission tax motivates firms to invest in pollution abatement technologies, but at the same time this type of investment is discouraged by the presence of criminal groups, whose main activity is money extortion. It is observed that under certain parameter values, there exists a situation in which a higher crime economy will produce lower output and nevertheless will have higher pollution. In other words, it is proved that crime might be one of the explanatory factors for which countries with lower output (i.e., less developed countries) are more polluted. In the last chapter, we examine the effects of the imposition of a minimum quality standard on firm's quality choices, when the policy maker is at an informational disadvantage regarding the monopolist's cost structure. In this asymmetric information environment, it is shown that if the regulator is outsmarted by the firm's misleading signal, the minimum quality standard will be downward distorted, which might negatively affect social welfare.