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Paradoxical consumption behavior when economic activity has environmental effects

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  • Asheim, Geir B.

Abstract

In a model where enhanced economic activity (accumulation of produced capital) leads to environmental effects (depletion of natural capital), competitive steady states corresponding to different discount rates are compared. For positive discount rates, the steady state stock of produced capital may exceed the size maximizing sustainable consumption. This implies paradoxical consumption behavior; that is, a lower discount rate may be associated with lower steady state consumption. The theoretical significance of this phenomenon for intergenerational equity is discussed, and examples indicating the empirical relevance of the underlying assumptions are presented.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 65 (2008)
Issue (Month): 3-4 (March)
Pages: 529-546

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Handle: RePEc:eee:jeborg:v:65:y:2008:i:3-4:p:529-546

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  1. Asheim,G.B. & Weitzman,M.L., 2001. "Does NNP growth indicate welfare improvement?," Memorandum 02/2001, Oslo University, Department of Economics.
  2. Geir Asheim & Wolfgang Buchholz & Cees Withagen, 2003. "The Hartwick Rule: Myths and Facts," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 25(2), pages 129-150, June.
  3. Avi J. Cohen, 2003. "Retrospectives: Whatever Happened to the Cambridge Capital Theory Controversies?," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 199-214, Winter.
  4. Becker, Robert A., 1982. "Intergenerational equity: The capital-environment trade-off," Journal of Environmental Economics and Management, Elsevier, vol. 9(2), pages 165-185, June.
  5. John Hartwick, 1976. "Intergenerational Equity and the Investing of Rents from Exhaustible Resources," Working Papers 220, Queen's University, Department of Economics.
  6. Clark, Colin W & Clarke, Frank H & Munro, Gordon R, 1979. "The Optimal Exploitation of Renewable Resource Stocks: Problems of Irreversible Investment," Econometrica, Econometric Society, vol. 47(1), pages 25-47, January.
  7. Robinson, Joan, 1975. "The Unimportance of Reswitching," The Quarterly Journal of Economics, MIT Press, vol. 89(1), pages 32-39, February.
  8. Swan, Trevor W, 2002. "Economic Growth," The Economic Record, The Economic Society of Australia, vol. 78(243), pages 375-80, December.
  9. Burmeister, Edwin & Hammond, P J, 1977. "Maximin Paths of Heterogeneous Capital Accumulation and the Instability of Paradoxical Steady States," Econometrica, Econometric Society, vol. 45(4), pages 853-70, May.
  10. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
  11. Geir Asheim & Tapan Mitra & Bertil Tungodden, 2012. "Sustainable recursive social welfare functions," Economic Theory, Springer, vol. 49(2), pages 267-292, February.
  12. Barkley Rosser, J. Jr., 1983. "Reswitching as a cusp catastrophe," Journal of Economic Theory, Elsevier, vol. 31(1), pages 182-193, October.
  13. Dixit, Avinash & Hammond, Peter & Hoel, Michael, 1980. "On Hartwick's Rule for Regular Maximin Paths of Capital Accumulation and Resource Depletion," Review of Economic Studies, Wiley Blackwell, vol. 47(3), pages 551-56, April.
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Cited by:
  1. Anders Skonhoft & Asle Gauteplass, 2012. "Optimal exploitation of a renewable resource with capital limitations," Working Paper Series 12912, Department of Economics, Norwegian University of Science and Technology.

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