Abstract
A problem of determining the optimal investment policy for pollution control is considered by using an aggregate growth model. It is assumed that the pollution as a flow increases in proportion to the gross output and decreases in proportion to the investment in pollution control. The problem is formulated as an infinite horizon optimal control problem in which the integral of the discounted social utility function is to be maximized, and is solved by applying the maximum principle. It is shown that the optimal policy is uniquely determined and the optimal path for the capital stock asymptotically approaches a unique equilibrium state. A numerical example is also presented, and the effect of the model parameters variation on the equilibrium state is examined.
