Long-run Welfare under Externalities in Consumption, Leisure, and Production: A Case for Happy Degrowth vs. Unhappy Growth

Ennio Bilancini and Simone D'Alessandro ()

Center for Economic Research (RECent) from University of Modena and Reggio E., Dept. of Economics "Marco Biagi"

Abstract: In this paper we contribute to the debate on the relationship between growth and well-being by examining an endogenous growth model where we allow for externalities in consumption, leisure, and production. We analyze three regimes: a decentralized economy where each household makes isolated choices without considering their external effects, a planned economy where a myopic planner fails to recognize both leisure and consumption externalities but recognizes production externalities, and a planned economy with a fully informed planner. We first compare the balanced growth paths under the three regimes and then we numerically investigate the transition to the optimal balanced growth path. We provide a number of ndings. First, in a decentralized economy growth or labor (or both) are greater than in the regime with a fully informed planner, and hence are sub-optimal from a welfare standpoint. Second, a myopic intervention which overlooks consumption and leisure externalities leads to more growth and labor than in both the decentralized and the fully informed regime. Third, we provide a case for happy degrowth: a transition to the optimal balanced growth path that is associated with downscaling of production, a reduction in private consumption, and an ongoing increase in leisure and well-being.

Keywords: degrowth; endogenous growth; consumption externalities; leisure externalities; production externalities (search for similar items in EconPapers)
JEL-codes: E62 H21 H23 Q13 (search for similar items in EconPapers)
Pages: pages 29
Date: 2011-11
New Economics Papers: this item is included in nep-dge, nep-fdg and nep-hap
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Long-run welfare under externalities in consumption, leisure, and production: A case for happy degrowth vs. unhappy growth (2012)
Working Paper: Long-run Welfare under Externalities in Consumption, Leisure, and Production: A Case for Happy Degrowth vs. Unhappy Growth (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:mod:recent:072

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