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A Note On The Consequences Of An Endogenous Discounting Depending On The Environmental Quality

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  • LE KAMA, ALAIN AYONG
  • SCHUBERT, KATHELINE

Abstract

Our intention is to study, in the framework of a very simple optimal growth model, the consequences on the optimal paths followed by consumption and the environmental quality of an endogenous discounting. Consumption directly comes from the use of environmental services and so is a direct cause of environmental degradation. The environment is valued both as a source of consumption and as an amenity. For a sustainability concern, we introduce an endogenous discount rate growing with the environmental quality, and compare the optimal growth paths with the ones obtained in the usual case of exogenous and constant discounting. We show that the convergence of the environmental quality toward a steady state occurs only for a very special configuration of the parameters in the exogenous discounting case, whereas it occurs generically in the endogenous discounting one. This happens for a utility discount rate becoming sufficiently high when the environmental quality is high and sufficiently low when the environmental quality is poor. In this case, then, endogenous discounting with a positive marginal discount rate allows us to avoid the depletion of the environment.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 11 (2007)
Issue (Month): 02 (April)
Pages: 272-289

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Handle: RePEc:cup:macdyn:v:11:y:2007:i:02:p:272-289_06

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Citations

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Cited by:
  1. Schumacher, Ingmar, 2011. "Endogenous discounting and the domain of the felicity function," Economic Modelling, Elsevier, vol. 28(1-2), pages 574-581, January.
  2. BONNEUIL, Noël & BOUCEKKINE, Raouf, 2009. "Sustainability, optimality, and viability in the Ramsey model," CORE Discussion Papers 2009074, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Eugenia Vella & Evangelos V. Dioikitopoulos & Sarantis Kalyvitis, 2012. "Green Spending Reforms, Growth and Welfare with Endogenous Subjective Discounting," DEGIT Conference Papers c017_045, DEGIT, Dynamics, Economic Growth, and International Trade.
  4. Ingmar, SCHUMACHER, 2006. "On optimality, endogeneous discounting and wealth accumulation," Discussion Papers (ECON - Département des Sciences Economiques) 2006058, Université catholique de Louvain, Département des Sciences Economiques.
  5. Alain Ayong Le Kama, 2001. "Preservation and exogenous uncertain future preferences," Economic Theory, Springer, vol. 18(3), pages 745-752.
  6. Yanase, Akihiko, 2011. "Impatience, pollution, and indeterminacy," Journal of Economic Dynamics and Control, Elsevier, vol. 35(10), pages 1789-1799, October.
  7. Giuseppe Di Vita, 2003. "Is the Discount Rate Relevant in Explaining the Environmental Kuznets Curve?," Working Papers 2003.83, Fondazione Eni Enrico Mattei.

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