An Overlapping Generations Model of Growth and the Environment

Andrew John and Rowena Pecchenino

Economic Journal, 1994, vol. 104, issue 427, 1393-1410

Abstract: This article analyzes the potential conflict between economic growth and the maintenance of environmental quality in an overlapping generations model. Short-lived individuals make decisions which have long-lasting effects on both factor productivity and the environment. The model provides a theoretical explanation of observed correlations between environmental quality and income, whereby economic growth is associated first with declines, then improvements, in environmental quality. It suggests circumstances in which multiple Pareto-ranked steady-state equilibria may arise, and in which sustained growth of both capital and environmental quality may occur. Overmaintenance of the environment, analogous to dynamically inefficient overaccumulation of capital, may emerge. Copyright 1994 by Royal Economic Society.

Date: 1994
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