Microfoundations for the Environmental Kuznets Curve: Invoking By-Production, Normality and Inferiority of Emissions
AbstractA by-production-cum-preference based approach is adopted to study the relation between national income and environmental quality under non-cooperative behaviour. While emission is an inferior good for richly endowed economies, it is a normal good for the developing economies. With increases in endowments, the marginal willingness to pay declines (respectively, increases) in the set of poorly (respectively, richly) endowed economies. Hence, for emissions, the income and substitution effects work in opposite directions. Abatement strategies include cleaning-up; decreases in and substitution between fuels of varying costs, emission, and energy intensities; and the diversion of capital from fuel-intensive to non-fuel intensive uses. Poorly (respectively, richly) endowed economies are characterized by weak (respectively, strong) environmental policies. Consequently, deteriorating abatement practices are adopted by the developing economies. The shape of the income-environmental quality graph depends on the relative strengths of income and substitution effects and the set of available abatement strategies. Both inverted U and N-shaped environmental Kuznets curves are possible. The latter arises due to stronger substitution effects and lower opportunity costs of fuel-intensive capital in the more richer of the richest economies.
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Bibliographic InfoPaper provided by Exeter University, Department of Economics in its series Discussion Papers with number 1203.
Date of creation: 2012
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environmental Kuznets curve; income and substitution effects; inferior good; normal good; by-production of emissions; returns to scale; abatement; inter-fuel substitution.;
Find related papers by JEL classification:
- Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
- Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
- O13 - Economic Development, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-03 (All new papers)
- NEP-ENE-2012-09-03 (Energy Economics)
- NEP-ENV-2012-09-03 (Environmental Economics)
- NEP-RES-2012-09-03 (Resource Economics)
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