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A note on the consequences of an endogenous discounting depending on the environmental quality

Author

Listed:
  • Alain Ayong Le Kama

    (Université de Lille, Sciences et Technologies)

  • Katheline Schubert

    () (PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

Our intention is to study, in the framework of a very simple optimal growth model, the consequences on the optimal paths followed by consumption and the environmental quality of an endogenous discounting. Consumption directly comes from the use of environmental services and so is a direct cause of environmental degradation. The environment is valued both as a source of consumption and as an amenity. For a sustainability concern, we introduce an endogenous discount rate growing with the environmental quality, and compare the optimal growth paths with the ones obtained in the usual case of exogenous and constant discounting. We show that the convergence of the environmental quality towards a steady state occurs only for a very special configuration of the parameters in the exogenous discounting case, while it occurs generically in the endogenous discounting one. This happens for a utility discount rate becoming suficiently high when the environmental quality is high and suficiently low when the environmental quality is poor. In this case then, endogenous discounting with a positive marginal discount rate allows us to avoid the depletion of the environment.

Suggested Citation

  • Alain Ayong Le Kama & Katheline Schubert, 2007. "A note on the consequences of an endogenous discounting depending on the environmental quality," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00206326, HAL.
  • Handle: RePEc:hal:cesptp:halshs-00206326
    DOI: 10.1017/S1365100507060063
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00206326
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    References listed on IDEAS

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    Cited by:

    1. Noël Bonneuil & Raouf Boucekkine, 2009. "Sustainability, optimality, and viability in the Ramsey model," Working Papers 2009_34, Business School - Economics, University of Glasgow.
    2. Raouf Boucekkine & Blanca Martínez & José Ramón Ruiz-Tamarit, 2017. "Optimal Population Growth as an Endogenous Discounting Problem: The Ramsey Case," Working Papers halshs-01579155, HAL.
    3. Vella, Eugenia & Dioikitopoulos, Evangelos V. & Kalyvitis, Sarantis, 2015. "Green Spending Reforms, Growth, And Welfare With Endogenous Subjective Discounting," Macroeconomic Dynamics, Cambridge University Press, vol. 19(06), pages 1240-1260, September.
    4. John M. Hartwick & Ngo Van Long, 2017. "Sustainability with endogenous discounting," CIRANO Working Papers 2017s-19, CIRANO.
    5. Di Vita, Giuseppe, 2008. "Is the discount rate relevant in explaining the Environmental Kuznets Curve?," Journal of Policy Modeling, Elsevier, vol. 30(2), pages 191-207.
    6. Evangelos V. Dioikitopoulos & Sugata Ghosh & Eugenia Vella, 2016. "Technological Progress, Time Perception and Environmental Sustainability," Working Papers 2016002, The University of Sheffield, Department of Economics.
    7. Schumacher, Ingmar, 2011. "Endogenous discounting and the domain of the felicity function," Economic Modelling, Elsevier, vol. 28(1-2), pages 574-581, January.
    8. José Manuel Madeira Belbute & Paulo Brito, 2009. "On the Relation Between the Endogenous Growth Rate of the Economy and the Dynamics of Renewable Resources," Economics Working Papers 07_2009, University of Évora, Department of Economics (Portugal).
    9. F. J. Escribá-Pérez & M. J. Murgui-García & J. R. Ruiz-Tamarit, 2017. "Economic and Statistical Measurement of Physical Capital with an Application to the Spanish Economy," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2017020, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    10. Chu, Hsun & Lai, Ching-chong & Liao, Chih-hsing, 2016. "A Note On Environment-Dependent Time Preferences," Macroeconomic Dynamics, Cambridge University Press, vol. 20(06), pages 1652-1667, September.
    11. Six, M. & Wirl, F., 2015. "Optimal pollution management when discount rates are endogenous," Resource and Energy Economics, Elsevier, vol. 42(C), pages 53-70.
    12. Alain Ayong Le Kama, 2001. "Preservation and exogenous uncertain future preferences," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 18(3), pages 745-752.
    13. Ingmar, SCHUMACHER, 2006. "On optimality, endogeneous discounting and wealth accumulation," Discussion Papers (ECON - Département des Sciences Economiques) 2006058, Université catholique de Louvain, Département des Sciences Economiques.
    14. repec:eee:mateco:v:73:y:2017:i:c:p:34-43 is not listed on IDEAS
    15. repec:eee:matsoc:v:95:y:2018:i:c:p:31-36 is not listed on IDEAS
    16. Can Askan Mavi, 2017. "Can a hazardous event be another source of poverty traps ?," Working Papers 2017.14, FAERE - French Association of Environmental and Resource Economists.
    17. Yanase, Akihiko, 2011. "Impatience, pollution, and indeterminacy," Journal of Economic Dynamics and Control, Elsevier, vol. 35(10), pages 1789-1799, October.
    18. Akihiko Yanase, 2014. "Indeterminacy and Pollution Haven Hypothesis in a Dynamic General Equilibrium Model," Open Economies Review, Springer, vol. 25(5), pages 959-980, November.

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