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

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  • Ennio Bilancini

    ()

  • Simone D'Alessandro

    ()

Abstract

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 effects, 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 first compare the balanced growth paths under the three regimes and then we numerically investigate the transition to the optimal balanced 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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  • Ennio Bilancini & Simone D'Alessandro, 2011. "Long-run Welfare under Externalities in Consumption, Leisure, and Production: A Case for Happy Degrowth vs. Unhappy Growth," Center for Economic Research (RECent) 072, University of Modena and Reggio E., Dept. of Economics "Marco Biagi".
  • Handle: RePEc:mod:recent:072
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    Cited by:

    1. Vincenzo Lombardo, 2013. "Relative consumption and human capital accumulation," Economics Bulletin, AccessEcon, vol. 33(2), pages 1091-1100.
    2. Angelo Antoci & Mauro Sodini & Luca Zarri, 2014. "Relational consumption and nonlinear dynamics in an overlapping generations model," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 37(1), pages 137-158, April.
    3. Stefano Bartolini & Ennio Bilancini & Francesco Sarracino, 2013. "Predicting the Trend of Well-Being in Germany: How Much Do Comparisons, Adaptation and Sociability Matter?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 114(2), pages 169-191, November.
    4. repec:eee:ecolec:v:148:y:2018:i:c:p:43-53 is not listed on IDEAS
    5. Angelo Antoci & Fabio Sabatini & Mauro Sodini, 2013. "Economic Growth, Technological Progress and Social Capital: The Inverted U Hypothesis," Metroeconomica, Wiley Blackwell, vol. 64(3), pages 401-431, July.
    6. Marc Germain, 2016. "A simple degrowth model," Working Papers 2016.21, FAERE - French Association of Environmental and Resource Economists.
    7. Leonardo Becchetti & Alessandra Pelloni, 2013. "What are we learning from the life satisfaction literature?," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 60(2), pages 113-155, June.
    8. Prof. Dr. Bernd Meyer & Gerd Ahlert & Roland Zieschank & Prof. Dr. Hans Diefenbacher, 2012. "Synopse aktuell diskutierter Wohlfahrtsansätze und grüner Wachstumskonzepte und grüner Wachstumskonzepte Synopse aktuell diskutierter Wohlfahrtsansätze und grüner Wachstumskonzepte," GWS Discussion Paper Series 12-4, GWS - Institute of Economic Structures Research.
    9. Bilancini, Ennio & Boncinelli, Leonardo, 2018. "Wage inequality, labor income taxes, and the notion of social status," Economics Discussion Papers 2018-41, Kiel Institute for the World Economy (IfW).
    10. Argentiero, Amedeo & Cerqueti, Roy & Sabatini, Fabio, 2018. "Does social capital explain the Solow residual? A DSGE approach," MPRA Paper 87100, University Library of Munich, Germany.
    11. Tokic, Damir, 2012. "The economic and financial dimensions of degrowth," Ecological Economics, Elsevier, vol. 84(C), pages 49-56.
    12. Raffaella Coppier & Fabio Sabatini & Mauro Sodini, 2018. "Social capital, human capital and fertility," EERI Research Paper Series EERI RP 2018/04, Economics and Econometrics Research Institute (EERI), Brussels.
    13. Heikkinen, T., 2015. "(De)growth and welfare in an equilibrium model with heterogeneous consumers," Ecological Economics, Elsevier, vol. 116(C), pages 330-340.
    14. Germain, Marc, 2017. "Optimal Versus Sustainable Degrowth Policies," Ecological Economics, Elsevier, vol. 136(C), pages 266-281.
    15. Vincenzo Lombardo, 2012. "Relative consumption and poverty traps," Discussion Papers 11_2012, CRISEI, University of Naples "Parthenope", Italy.
    16. Gerd Ahlert & Prof. Dr. Bernd Meyer & Roland Zieschank & Prof. Dr. Hans Diefenbacher & Prof. Dr. Hans G. Nutzinger, 2013. "Synopsis of Approaches to Welfare and of Green Growth Concepts Currently under Discussion," GWS Discussion Paper Series 13-1, GWS - Institute of Economic Structures Research.
    17. Bernardo, Giovanni & D'Alessandro, Simone, 2014. "Transition to sustainability? Feasible scenarios towards a low-carbon economy," MPRA Paper 53746, University Library of Munich, Germany.
    18. Rafael Laurenti & Jagdeep Singh & Rajib Sinha & Josepha Potting & Björn Frostell, 2016. "Unintended Environmental Consequences of Improvement Actions: A Qualitative Analysis of Systems' Structure and Behavior," Systems Research and Behavioral Science, Wiley Blackwell, vol. 33(3), pages 381-399, May.

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    Keywords

    degrowth; endogenous growth; consumption externalities; leisure externalities; production externalities;

    JEL classification:

    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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