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Threshold Preferences and the Environment

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  • Ingmar Schumacher
  • Benteng Zou

Abstract

In this article we study the implication of thresholds in preferences. To model this we extend the basic model of John and Pecchenino (1994) by allowing the current level of environmental quality to have a discrete impact on how an agent trades off future consumption and environmental quality. In other words, we endogenize the semi-elasticity of utility based on a step function. We motivate the existence of the threshold based on research from political science, from arguments based on regulation and standards, cultural economics as well as ecological economics. Our results are that the location of the threshold determines both the potential steady states as well as the dynamics. For low (high) thresholds, environmental quality converges to a low (high) steady state. For intermediate levels it converges to a stable p-cycle, with environmental quality being asymptotically bounded below and above by the low and high steady state. We discuss implications for intergenerational equity and policy making. As policy implications we study shifts in the threshold. Our results are that, in case it is costless to shift the threshold, it is always worthwhile to do so. If it is costly to change the threshold, then it is worthwhile to change the threshold if the threshold originally was suffiently low. Lump-sum taxes may lead to a development trap and should be avoided if there are uncertainties about the threshold or the effectiveness of the policy.
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Suggested Citation

  • Ingmar Schumacher & Benteng Zou, 2013. "Threshold Preferences and the Environment," Working Papers 2013-15, Department of Research, Ipag Business School.
    • Handle: RePEc:ipg:wpaper:2013-15
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    References listed on IDEAS

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    Cited by:

    1. Karine Constant & Marion Davin, 2014. "Environmental Policy and Growth in a Model with Endogenous Environmental Awareness," AMSE Working Papers 1405, Aix-Marseille School of Economics, France, revised Mar 2014.
    2. Augeraud-Veron, Emmanuelle & Boucekkine, Raouf & Gozzi, Fausto & Venditti, Alain & Zou, Benteng, 2024. "Fifty years of mathematical growth theory: Classical topics and new trends," Journal of Mathematical Economics, Elsevier, vol. 111(C).
    3. Sichao Wei & David Aadland, 2021. "Pollution permits, green taxes, and the environmental poverty trap," Review of Development Economics, Wiley Blackwell, vol. 25(2), pages 1032-1052, May.
    4. Craig Bullock & Robert O'Shea, 2016. "Valuing environmental damage remediation and liability using value estimates for ecosystem services," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 59(9), pages 1711-1727, September.
    5. Asuka Oura & Yasukatsu Moridera & Koichi Futagami, 2018. "Lethal Effects of Pollution and Economic Growth: Efficiency of Abatement Technology," The Japanese Economic Review, Japanese Economic Association, vol. 69(2), pages 189-206, June.
    6. Schumacher, Ingmar & Zou, Benteng, 2015. "Threshold preferences and the environment," Journal of Mathematical Economics, Elsevier, vol. 60(C), pages 17-27.
    7. Aznar-Márquez, J. & Ruiz-Tamarit, J.R., 2017. "Sustainable growth and environmental catastrophes," Mathematical Social Sciences, Elsevier, vol. 89(C), pages 83-91.
    8. Fabien Prieur & Benteng Zou, 2017. "On the impact of indirect competition for political influence on environmental policy," DEM Discussion Paper Series 17-16, Department of Economics at the University of Luxembourg.
    9. Prieur, Fabien & Zou, Benteng, 2018. "Climate politics: How public persuasion affects the trade-off between environmental and economic performance," Mathematical Social Sciences, Elsevier, vol. 96(C), pages 63-72.

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    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • 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

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