IDEAS home Printed from https://ideas.repec.org/a/eee/jeborg/v65y2008i3-4p529-546.html
   My bibliography  Save this article

Paradoxical consumption behavior when economic activity has environmental effects

Author

Listed:
  • Asheim, Geir B.

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.

Suggested Citation

  • Asheim, Geir B., 2008. "Paradoxical consumption behavior when economic activity has environmental effects," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 529-546, March.
    • Handle: RePEc:eee:jeborg:v:65:y:2008:i:3-4:p:529-546
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167-2681(06)00197-1
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Avinash Dixit & Peter Hammond & Michael Hoel, 1980. "On Hartwick's Rule for Regular Maximin Paths of Capital Accumulation and Resource Depletion," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(3), pages 551-556.
    2. Avi J. Cohen, 2003. "Retrospectives: Whatever Happened to the Cambridge Capital Theory Controversies?," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 199-214, Winter.
    3. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    4. Geir Asheim & Wolfgang Buchholz & Cees Withagen, 2003. "The Hartwick Rule: Myths and Facts," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 25(2), pages 129-150, June.
    5. Becker, Robert A., 1982. "Intergenerational equity: The capital-environment trade-off," Journal of Environmental Economics and Management, Elsevier, vol. 9(2), pages 165-185, June.
    6. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
    7. Burmeister, Edwin & Hammond, P J, 1977. "Maximin Paths of Heterogeneous Capital Accumulation and the Instability of Paradoxical Steady States," Econometrica, Econometric Society, vol. 45(4), pages 853-870, May.
    8. Asheim, Geir B. & Weitzman, Martin L., 2001. "Does NNP growth indicate welfare improvement?," Economics Letters, Elsevier, vol. 73(2), pages 233-239, November.
    9. Hartwick, John M, 1977. "Intergenerational Equity and the Investing of Rents from Exhaustible Resources," American Economic Review, American Economic Association, vol. 67(5), pages 972-974, December.
    10. Barkley Rosser, J. Jr., 1983. "Reswitching as a cusp catastrophe," Journal of Economic Theory, Elsevier, vol. 31(1), pages 182-193, October.
    11. repec:bla:ecorec:v:78:y:2002:i:243:p:375-80 is not listed on IDEAS
    12. Geir B. Asheim & Tapan Mitra & Bertil Tungodden, 2016. "Sustainable Recursive Social Welfare Functions," Studies in Economic Theory, in: Graciela Chichilnisky & Armon Rezai (ed.), The Economics of the Global Environment, pages 165-190, Springer.
    13. Joan Robinson, 1975. "The Unimportance of Reswitching," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 89(1), pages 32-39.
    14. R. M. Solow, 1974. "Intergenerational Equity and Exhaustible Resources," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(5), pages 29-45.
    15. Clark, Colin W & Clarke, Frank H & Munro, Gordon R, 1979. "The Optimal Exploitation of Renewable Resource Stocks: Problems of Irreversible Investment," Econometrica, Econometric Society, vol. 47(1), pages 25-47, January.
    16. Syed Ahmad, 1991. "Capital in Economic Theory," Books, Edward Elgar Publishing, number 5.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Anders Skonhoft & Asle Gauteplass, 2012. "Optimal exploitation of a renewable resource with capital limitations," Working Paper Series 12912, Department of Economics, Norwegian University of Science and Technology.
    2. Robert L. Vienneau, 2017. "The Choice of Technique with Multiple and Complex Interest Rates," Review of Political Economy, Taylor & Francis Journals, vol. 29(3), pages 440-453, July.
    3. Geir B. Asheim & Frikk Nesje, 2016. "Destructive Intergenerational Altruism," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(4), pages 957-984.
    4. J. Barkley Rosser, 2020. "Austrian themes and the Cambridge capital theory controversies," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 33(4), pages 415-431, December.
    5. Holger Strulik, 2021. "Hyperbolic discounting and the time‐consistent solution of three canonical environmental problems," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(3), pages 462-486, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cairns, Robert D. & Del Campo, Stellio & Martinet, Vincent, 2019. "Sustainability of an economy relying on two reproducible assets," Journal of Economic Dynamics and Control, Elsevier, vol. 101(C), pages 145-160.
    2. Humberto Llavador & John E. Roemer & Joaquim Silvestre, 2013. "Should we sustain? And if so, sustain what? Consumption or the quality of life?," Chapters, in: Roger Fouquet (ed.), Handbook on Energy and Climate Change, chapter 30, pages 639-665, Edward Elgar Publishing.
    3. Humberto Llavador & John E. Roemer & Joaquim Silvestre, 2013. "Should we sustain? And if so, sustain what? Consumption or the quality of life?," Chapters,in: Handbook on Energy and Climate Change, chapter 30, pages 639-665 Edward Elgar Publishing.
    4. Asheim, Geir B. & Buchholz, Wolfgang & Hartwick, John M. & Mitra, Tapan & Withagen, Cees, 2007. "Constant savings rates and quasi-arithmetic population growth under exhaustible resource constraints," Journal of Environmental Economics and Management, Elsevier, vol. 53(2), pages 213-229, March.
    5. Heijnen, P., 2008. "The Hartwick rule as a conservation law," CeNDEF Working Papers 08-11, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
    6. Nick Hanley & Louis Dupuy & Eoin McLaughlin, 2015. "Genuine Savings And Sustainability," Journal of Economic Surveys, Wiley Blackwell, vol. 29(4), pages 779-806, September.
    7. Verchère, Alban, 2011. "Le développement durable en question : analyses économiques autour d’un improbable compromis entre acceptions optimiste et pessimiste du rapport de l’Homme à la Nature," L'Actualité Economique, Société Canadienne de Science Economique, vol. 87(3), pages 337-403, septembre.
    8. Geir B. Asheim & Wolfgang Buchholz, 2004. "A General Approach to Welfare Measurement through National Income Accounting," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(2), pages 361-384, June.
    9. David I. Stern, 2010. "The Role of Energy in Economic Growth," CCEP Working Papers 0310, Centre for Climate & Energy Policy, Crawford School of Public Policy, The Australian National University.
    10. Asheim, Geir B. & Hartwick, John M. & Mitra, Tapan, 2021. "Investment rules and time invariance under population growth," Journal of Economic Dynamics and Control, Elsevier, vol. 123(C).
    11. Dzhumashev, Ratbek, 2024. "The role of physical constraints on production," Ecological Economics, Elsevier, vol. 216(C).
    12. Martin de Wit & Matthew Kuperus Heun & Douglas J Crookes, 2013. "An overview of salient factors, relationships and values to support integrated energy-economic systems dynamic modelling," Working Papers 02/2013, Stellenbosch University, Department of Economics.
    13. Geir B. Asheim & Tapan Mitra, 2021. "Characterizing sustainability in discrete time," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(2), pages 461-481, March.
    14. Mitra, Tapan, 2002. "Intertemporal Equity and Efficient Allocation of Resources," Journal of Economic Theory, Elsevier, vol. 107(2), pages 356-376, December.
    15. Cairns, Robert D. & Martinet, Vincent, 2021. "Growth and long-run sustainability," Environment and Development Economics, Cambridge University Press, vol. 26(4), pages 381-402, August.
    16. Mikesell, Raymond F., 1995. "The limits to growth : A reappraisal," Resources Policy, Elsevier, vol. 21(2), pages 127-131, June.
    17. van der Ploeg, Frederick, 2010. "Why do many resource-rich countries have negative genuine saving?: Anticipation of better times or rapacious rent seeking," Resource and Energy Economics, Elsevier, vol. 32(1), pages 28-44, January.
    18. Pezzey, John C.V., 2001. "Optimality, Hartwick’s Rule, and Instruments of Sustainability Policy and Environmental Policy," 2001 Conference (45th), January 23-25, 2001, Adelaide, Australia 125833, Australian Agricultural and Resource Economics Society.
    19. Geir B. Asheim, 2003. "Green national accounting for welfare and sustainability:A Taxonomy Of Assumptions And Results," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(2), pages 113-130, May.
    20. d'Autume, Antoine & Schubert, Katheline, 2008. "Hartwick's rule and maximin paths when the exhaustible resource has an amenity value," Journal of Environmental Economics and Management, Elsevier, vol. 56(3), pages 260-274, November.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:65:y:2008:i:3-4:p:529-546. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jebo .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.