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Long-run welfare under externalities in consumption, leisure, and production: A case for happy degrowth vs. unhappy growth

Listed author(s):
  • Bilancini, Ennio
  • D'Alessandro, Simone

In this paper we contribute to the debate on the relationship between growth and well-being by examining an endogenous growth model where we allow for externalities in consumption, leisure, and production. We analyze three regimes: a decentralized economy where each household makes isolated choices without considering their external effects, a planned economy where a myopic planner fails to recognize both leisure and consumption externalities but recognizes production externalities, and a planned economy with a fully informed planner. We first compare the balanced growth paths under the three regimes and then we numerically investigate the transition to the optimal balanced growth path. We provide a number of findings. First, in a decentralized economy growth or labor (or both) are greater than in the regime with a fully informed planner, and hence are sub-optimal from a welfare standpoint. Second, a myopic intervention which overlooks consumption and leisure externalities leads to more growth and labor than in both the decentralized and the fully informed regime. Third, we provide a case for happy degrowth: a transition to the optimal balanced growth path that is associated with downscaling of production, a reduction in private consumption, and an ongoing increase in leisure and well-being.

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File URL: http://www.sciencedirect.com/science/article/pii/S0921800911004526
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Article provided by Elsevier in its journal Ecological Economics.

Volume (Year): 84 (2012)
Issue (Month): C ()
Pages: 194-205

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Handle: RePEc:eee:ecolec:v:84:y:2012:i:c:p:194-205
DOI: 10.1016/j.ecolecon.2011.10.023
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolecon

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