Polluting Resources, Economically Relevant Stock and Environmental Policy

We consider a partial equilibrium model where the consumption of a non-renewable resource generates a flow of pollution. This flow of emissions impact on the quality of environment which a obeys a dynamic regeneration process. Both consumption of resource and environmental quality enters the stream of utility of the infinitely lived agent. Departing from the standard literature, we explicitly study (and contrast) two polar cases: the (standard) case where the marginal utility of resource consumption is unbounded and the case where it is bounded from above. In both cases, we study the competitive equilibrium, the optimal allocation and its decentralization