A Theory of Endogenous Degrowth and Environmental Sustainability

We develop and quantify a novel growth theory in which economic activity endogenously shifts from material production to quality improvements. Consumers derive utility from goods with differing environmental footprints: necessities are material-intensive and polluting, while luxuries are more service-based and emit less. Innovation can be directed toward either material productivity or product~quality. Because demand for luxuries is more sensitive to quality, the economy gradually becomes “weightless”: growth is driven by quality improvements, services become the dominant employment sector, and material production stabilizes at a finite level. This structural transformation enables rising living standards with declining environmental intensity, providing an endogenous path to degrowth in material output without compromising economic progress. Policy can accelerate the transition, but its burden is uneven, falling more heavily on the poor than on the rich.