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Preferences and pollution cycles

Stefano Bosi, David Desmarchelier () and Lionel Ragot ()

No 2015-36, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: We consider a competitive Ramsey economy where a pollution externality affects both consumption demand and labor supply, and we assume the stock of pollution to be persistent over time. Surprisingly, when pollution jointly increases the consumption demand (compensation effect) and lowers the labor supply (leisure effect ), multiple equilibria arise near the steady state (local indeterminacy) through a Hopf bifurcation (limit cycle). This result challenges the standard view of pollution as a fow to obtain local indeterminacy, and depends on the leisure effect which renders the pollution accumulation process more volatile.

Keywords: pollution; endogenous labor supply; limit cycle; Ramsey model. (search for similar items in EconPapers)
JEL-codes: E32 O44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-ene, nep-env and nep-mac
Date: 2015
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Working Paper: Preferences and pollution cycles (2016) Downloads
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