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Preferences and pollution cycles

Author

Listed:
  • Stefano Bosi

    (EPEE, University of Evry)

  • David Desmarchelier

    (ECONOMIX, University of Paris Ouest)

  • Lionel Ragot

    (ECONOMIX, University of Paris Ouest and CEPII)

Abstract

We consider a competitive Ramsey economy where a pollution externality affects both consumption demand and labor supply, and we assume the stock of pollution to be persistent over time. Surprisingly, when pollution jointly increases the consumption demand (compensation effect) and lowers the labor supply (leisure effect), multiple equilibria arise near the steady state (local indeterminacy) through a Hopf bifurcation (limit cycle). This result challenges the standard view of pollution as a flow to obtain local indeterminacy, and depends on the leisure effect which renders the pollution accumulation process more volatile.

Suggested Citation

  • Stefano Bosi & David Desmarchelier & Lionel Ragot, 2016. "Preferences and pollution cycles," Working Papers 2016.03, FAERE - French Association of Environmental and Resource Economists.
    • Handle: RePEc:fae:wpaper:2016.03
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    References listed on IDEAS

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    Cited by:

    1. Stefano Bosi & David Desmarchelier, 2018. "Limit Cycles Under a Negative Effect of Pollution on Consumption Demand: The Role of an Environmental Kuznets Curve," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 69(2), pages 343-363, February.

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    More about this item

    Keywords

    Pollution; Endogenous labor supply; Limit cycle; Ramsey model;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth

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