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Microfoundations for the Environmental Kuznets Curve: Invoking By-Production, Normality and Inferiority of Emissions

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  • Sushama Murty

    (Department of Economics, University of Exeter)

Abstract

A 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.

Suggested Citation

  • Sushama Murty, 2012. "Microfoundations for the Environmental Kuznets Curve: Invoking By-Production, Normality and Inferiority of Emissions," Discussion Papers 1203, University of Exeter, Department of Economics.
  • Handle: RePEc:exe:wpaper:1203
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    File URL: http://people.exeter.ac.uk/RePEc/dpapers/DP1203.pdf
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    References listed on IDEAS

    as
    1. Murty, Sushama, 2010. "Externalities and fundamental nonconvexities: A reconciliation of approaches to general equilibrium externality modeling and implications for decentralization," Journal of Economic Theory, Elsevier, vol. 145(1), pages 331-353, January.
    2. Murty, Sushama & Russell, R. Robert, 2010. "On modeling pollution-generating technologies," The Warwick Economics Research Paper Series (TWERPS) 931, University of Warwick, Department of Economics.
    3. John, A & Pecchenino, R, 1994. "An Overlapping Generations Model of Growth and the Environment," Economic Journal, Royal Economic Society, vol. 104(427), pages 1393-1410, November.
    4. Selden Thomas M. & Song Daqing, 1994. "Environmental Quality and Development: Is There a Kuznets Curve for Air Pollution Emissions?," Journal of Environmental Economics and Management, Elsevier, vol. 27(2), pages 147-162, September.
    5. Sushama Murty, 2011. "The Theory of By-Production of Emissions and Capital-Constrained Non-Cooperative Nash Outcomes of a Global Economy," Discussion Papers 1110, University of Exeter, Department of Economics.
    6. Junko Doi & Kazumichi Iwasa & Koji Shimomura, 2009. "Giffen behavior independent of the wealth level," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 41(2), pages 247-267, November.
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    More about this item

    Keywords

    environmental Kuznets curve; income and substitution effects; inferior good; normal good; by-production of emissions; returns to scale; abatement; inter-fuel substitution.;

    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, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O13 - Economic Development, Innovation, 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

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