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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 - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 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://shs.hal.science/halshs-00206326
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