Paradoxical consumption behavior when economic activity has environmental effects

Geir Asheim

Journal of Economic Behavior & Organization, 2008, vol. 65, issue 3-4, 529-546

Abstract: In a model where enhanced economic activity (accumulation of produced capital) leads to environmental effects (depletion of natural capital), competitive steady states corresponding to different discount rates are compared. For positive discount rates, the steady state stock of produced capital may exceed the size maximizing sustainable consumption. This implies paradoxical consumption behavior; that is, a lower discount rate may be associated with lower steady state consumption. The theoretical significance of this phenomenon for intergenerational equity is discussed, and examples indicating the empirical relevance of the underlying assumptions are presented.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:65:y:2008:i:3-4:p:529-546

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