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Long-run Welfare under Externalities in Consumption, Leisure, and Production: A Case for Happy Degrowth vs. Unhappy Growth

  • Ennio Bilancini

    ()

  • Simone D’Alessandro

    ()

In this paper we contribute to the debate on the relationship between growth and well-being by examining an endogenous growth model where we allow for externalities in consumption, leisure, and production. We analyze three regimes: a decentralized economy where each household makes isolated choices without considering their external e_ects, a planned economy where a myopic planner fails to recognize both leisure and consumption externalities but recognizes production externalities, and a planned economy with a fully informed planner. We _rst compare the balanced growth paths under the three regimes and then we numerically investigate the transition to the optimal bilance growth path. We provide a number of _ndings. First, in a decentralized economy growth or labor (or both) are greater than in the regime with a fully informed planner, and hence are sub-optimal from a welfare standpoint. Second, a myopic intervention which overlooks consumption and leisure externalities leads to more growth and labor than in both the decentralized and the fully informed regime. Third, we provide a case for happy degrowth: a transition to the optimal balanced growth path that is associated with downscaling of production, a reduction in private consumption, and an ongoing increase in leisure and well-being.

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File URL: http://www.dep.unimore.it/materiali_discussione/0667.pdf
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Paper provided by University of Modena and Reggio E., Faculty of Economics "Marco Biagi" in its series Department of Economics with number 0667.

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Length: pages 31
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:mod:depeco:0667
Contact details of provider: Web page: http://www.economia.unimore.it/

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