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Sustainable Growth in a Model with Dual-Rate Discounting

Author

Listed:
  • Kirill Borissov
  • Kirill Shakhnov

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.

Suggested Citation

  • Kirill Borissov & Kirill Shakhnov, 2011. "Sustainable Growth in a Model with Dual-Rate Discounting," EUSP Department of Economics Working Paper Series Ec-04/11, European University at St. Petersburg, Department of Economics, revised 10 Mar 2011.
  • Handle: RePEc:eus:wpaper:ec0411
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    References listed on IDEAS

    as
    1. Yang, Zili, 2003. "Dual-rate discounting in dynamic economic-environmental modeling," Economic Modelling, Elsevier, vol. 20(5), pages 941-957, September.
    2. 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.
    3. 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.
    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. Lumley, Sarah, 1997. "The environment and the ethics of discounting: An empirical analysis," Ecological Economics, Elsevier, vol. 20(1), pages 71-82, January.
    6. Gintis, Herbert, 2000. "Beyond Homo economicus: evidence from experimental economics," Ecological Economics, Elsevier, vol. 35(3), pages 311-322, December.
    7. J.K. Horowitz, 2002. "Preferences in the Future," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 21(3), pages 241-258, March.
    8. 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.
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    More about this item

    Keywords

    growth; pollution; discounting;

    JEL classification:

    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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