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Sustainable growth in a model with dual-rate discounting

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  • Kirill Borissov
  • Kirill Shakhnov

    ()
    (Department of Economics, European University Institute)

Abstract

In an important model of growth and pollution proposed by Stokey [Int. Econ. Rev. 39 (1998) 1] neither the rate of economic growth nor the rate of growth of emissions depends on the time preference of the representative agent, which seems somewhat paradoxical. To resolve this paradox, we introduce into Stokey's model the assumption of dual-rate discounting, prove the existence of a sustainable balanced growth optimal path, and show that the growth rates of output and emissions are increasing in the proportion between the consumption and the environmental discount factors of the representative agent.

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Bibliographic Info

Paper provided by European University at St. Petersburg, Department of Economics in its series EUSP Deparment of Economics Working Paper Series with number Ec-04/11.

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Length: 12 pages
Date of creation: 07 Mar 2011
Date of revision: 10 Mar 2011
Publication status: Published in Economic Modelling 28 (2011) 2071–2074
Handle: RePEc:eus:wpaper:ec0411

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Keywords: growth; pollution; discounting;

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  1. Saez, Carmen Almansa & Requena, Javier Calatrava, 2007. "Reconciling sustainability and discounting in Cost-Benefit Analysis: A methodological proposal," Ecological Economics, Elsevier, vol. 60(4), pages 712-725, February.
  2. Lumley, Sarah, 1997. "The environment and the ethics of discounting: An empirical analysis," Ecological Economics, Elsevier, vol. 20(1), pages 71-82, January.
  3. J.K. Horowitz, 2002. "Preferences in the Future," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 21(3), pages 241-258, March.
  4. Weikard, Hans-Peter & Zhu, Xueqin, 2005. "Discounting and environmental quality: When should dual rates be used?," Economic Modelling, Elsevier, vol. 22(5), pages 868-878, September.
  5. Stokey, Nancy L, 1998. "Are There Limits to Growth?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 1-31, February.
  6. Gintis, Herbert, 2000. "Beyond Homo economicus: evidence from experimental economics," Ecological Economics, Elsevier, vol. 35(3), pages 311-322, December.
  7. Yang, Zili, 2003. "Dual-rate discounting in dynamic economic-environmental modeling," Economic Modelling, Elsevier, vol. 20(5), pages 941-957, September.
  8. Taylor, Cameron L. & Adamowicz, Wiktor L. & Luckert, Martin K., 2003. "Preferences over the timing of forest resource use," Journal of Forest Economics, Elsevier, vol. 9(3), pages 223-240.
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