Sustainability traps: patience and innovation

This paper argues that the joint relation between long-term orientation, environmental quality and innovation plays a key role in explaining environment-poverty traps. Based on empirical observations, we allow for the subjective discount rate to negatively depend on environmental quality in an R&D-driven endogenous growth model with local pollution externalities. Our model reconciles two empirical facts: i) multiple equilibria of economic and environmental development; ii) opposite responses to technological improvements depending on the initial equilibrium. Our results suggest that -- in addition to traditional policies such as development aid and technology transfer -- policies that aim at improving both the economic and the environmental dimension of sustainability, should also focus on changing individuals' long-term views in countries that face weak environmental conditions.