Non-Homothetic Growth Models for the Environmental Kuznets Curve
In this paper, we study the impact of the economic growth on the environment. First, we show that, at each income level, eta determines the direction of environmental degradation, where eta is the elasticity of substitution between consumption and the environment. That is, for eta large enough, as income increases people accept environmental degradation by enjoying more consumption as compensation, and vice versa. Intuitively, there are two effects operating; the income effect encourages the demand for better environmental quality simply because the environment is a normal good, whereas the substitution effect discourages it because maintaining the environment becomes more expensive as technology improvement increases the production of the general consumption good per unit of emission. The strength of the substitution effect is governed by eta. Hence, the impact of economic growth on the environment crucially depends on eta. Second, we demonstrate that exponential utility generates the environmental Kuznets curve (EKC) under a wide class of models without adding any other peculiar assumptions. Under exponential utility, eta is decreasing in income; intuitively, when a country is poor (large eta), people seek more consumption at the cost of environmental degradation, but, once it becomes rich enough (small eta), they seek increased environmental quality.
|Date of creation:||Feb 2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +44 (0)1227 827497
Web page: http://www.kent.ac.uk/economics/
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mehra, Rajnish & Prescott, Edward C., 1985.
"The equity premium: A puzzle,"
Journal of Monetary Economics,
Elsevier, vol. 15(2), pages 145-161, March.
- Hannes Egli & Thomas M. Steger, 2004.
"A Dynamic Model of the Environmental Kuznets Curve : Turning Point and Public Poliy,"
CER-ETH Economics working paper series
04/33, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich, revised May 2005.
- Hannes Egli & Thomas Steger, 2007. "A Dynamic Model of the Environmental Kuznets Curve: Turning Point and Public Policy," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 36(1), pages 15-34, January.
- Svensson, L.E.O., 1988.
"Portfolio Choice With Non-Expected Utility In Continuous Time,"
423, Stockholm - International Economic Studies.
- Svensson, Lars E. O., 1989. "Portfolio choice with non-expected utility in continuous time," Economics Letters, Elsevier, vol. 30(4), pages 313-317, October.
- William A. Brock & M. Scott Taylor, 2004.
"The Green Solow Model,"
NBER Working Papers
10557, National Bureau of Economic Research, Inc.
- Xepapadeas, Anastasios, 2005. "Economic growth and the environment," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 3, chapter 23, pages 1219-1271 Elsevier.
- Lopez Ramon, 1994. "The Environment as a Factor of Production: The Effects of Economic Growth and Trade Liberalization," Journal of Environmental Economics and Management, Elsevier, vol. 27(2), pages 163-184, September.
- Weil, Philippe, 1990. "Nonexpected Utility in Macroeconomics," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 29-42, February.
- Sjak Smulders & Lucas Bretschger & Hannes Egli, 2005. "Economic growth and the diffusion of clean technologies : explaining environmental Kuznets," CER-ETH Economics working paper series 05/42, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
- Fabien Prieur, 2009.
"The environmental Kuznets curve in a world of irreversibility,"
Springer, vol. 40(1), pages 57-90, July.
- Fabien Prieur, 2007. "The Environmental Kuznets Curve in a World of Irreversibility," Working Papers 2007.57, Fondazione Eni Enrico Mattei.
- Behrens, Kristian & Murata, Yasusada, 2007. "General equilibrium models of monopolistic competition: A new approach," Journal of Economic Theory, Elsevier, vol. 136(1), pages 776-787, September.
- Smith, William & Son, Young Seob, 2005. "Can the desire to conserve our natural resources be self-defeating?," Journal of Environmental Economics and Management, Elsevier, vol. 49(1), pages 52-67, January.
- James Andreoni & Arik Levinson, 1998.
"The Simple Analytics of the Environmental Kuznets Curve,"
NBER Working Papers
6739, National Bureau of Economic Research, Inc.
- Andreoni, James & Levinson, Arik, 2001. "The simple analytics of the environmental Kuznets curve," Journal of Public Economics, Elsevier, vol. 80(2), pages 269-286, May.
- Hartman, Richard & Kwon, O-Sung, 2005. "Sustainable growth and the environmental Kuznets curve," Journal of Economic Dynamics and Control, Elsevier, vol. 29(10), pages 1701-1736, October.
- Richard T. Carson, 2010. "The Environmental Kuznets Curve: Seeking Empirical Regularity and Theoretical Structure," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 4(1), pages 3-23, Winter.
- Epstein, Larry G & Zin, Stanley E, 1989. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework," Econometrica, Econometric Society, vol. 57(4), pages 937-69, July.
- Christoph Lieb, 2004. "The Environmental Kuznets Curve and Flow versus Stock Pollution: The Neglect of Future Damages," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 29(4), pages 483-506, December.
- Chimeli, Ariaster B. & Braden, John B., 2005. "Total factor productivity and the environmental Kuznets curve," Journal of Environmental Economics and Management, Elsevier, vol. 49(2), pages 366-380, March.
- Stokey, Nancy L, 1998. "Are There Limits to Growth?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 1-31, February.
When requesting a correction, please mention this item's handle: RePEc:ukc:ukcedp:1206. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tracey Girling)
If references are entirely missing, you can add them using this form.