Optimal investment in pollution control capital in a neoclassical growth context

A neoclassical growth model is employed to study the optimal division of investment between pollution control capital and directly productive capital while simultaneously treating the saving rate as a policy variable to be varied to the optimal. The model treats pollution as a flow positively related to aggregate output, negatively related to the stock of pollution control capital, and having a negative effect on utility. Under the assumptions chosen, the optimal policy is an unbalanced one of specializing investment first in directly productive capital and subsequently in pollution control capital.